Workers Compensation Fee Schedules = Less Costly Claims and Premiums

Virtually all Workers Compensation Fee Schedules cut comp costs across the board. Check out this search for fee schedules articleson this website. WCRI just published a massive study on workers compensation fee schedules. The study covers 87% of the workers comp benefits paid in the US.

Public Use License Wikimedia Gnarlycraig

WCRI Says Freebies On This One

Dr. Rebecca Yang and Dr. Olesya Fomenko’s extremely comprehensive study covers 35 states. These two researchers are data geniuses along with all the staff at WCRI.

For many years (over 11) I have written numerous articles on fee schedules. Why?- because they are governmental interventions that usually totally works to reduce the cost to employers, carriers, and all other parties. Next week, I will cover the hidden side of fee schedules that are just as important.

Virginia just enacteda fee schedule. For some reason, I thought Virginia would never have a fee schedule. Some tweaks will likely be needed for their fee schedule.

From the WCRI press release and website:

The study, WCRI Medical Price Index for Workers’ Compensation, 10th Edition (MPI-WC), compares medical prices paid in 35 states and tracks price changes in most states over a 10-year span from 2008 to 2017 for professional services billed by physicians, physical therapists, and chiropractors. The medical services fall into eight groups: evaluation and management, physical medicine, surgery, major radiology, minor radiology, neurological testing, pain management injections, and emergency care.

One interesting development pointed out by WCRI is the following states had major fee schedule changes:

Arizona

California

Colorado

Illinois

Kentucky

Massachusetts

North Carolina

Texas.

The rating bureaus such as NCCI (most of nation) and WCIRB (California) both provided numerous articles on fee schedules reducing costs.

The following is a sample of the WCRI study’s findings: (directly from their website)

Prices paid for a similar set of professional services varied significantly across states, ranging from 26 percent below the 35-state median in Florida to 158 percent above the 35-state median in Wisconsin in 2017.

States with no fee schedules for professional services had higher prices paid compared with states with fee schedules—39 to 168 percent higher than the median of the study states with fee schedules in 2017.

Changes in prices paid for professional services exhibited variation across states, spanning between a 17 percent decrease in Illinois and a 39 percent increase in Wisconsin over the time period from 2008 to 2017.

Most states with no fee schedules experienced faster growth in prices paid for professional services compared with states with fee schedules—the median growth rate among the non-fee schedule states was 30 percent from 2008 to 2017, compared with the median growth rate of 6 percent among the fee schedule states.

I think we can draw a direct conclusion from the studies by NCCI, WCIRB, and especially WCRI. States can only help themselves by enacting and properly adjusting their workers compensation fee schedules.

NCCI Names Most Reclassified Workers Compensation Class Code 9015

License Public Domain

The Workers Compensation Class Code 9015 has long been a source of confusion for agents, underwriters, and premium auditors. NCCI (National Council on Compensation Insurance) reaffirmed the confusion by naming the Code as their most reclassified code.

In the past, NCCI had published their Top 10 Reclassified Codes each year. I assume we will just have the Top 1 only now and in the future.

How could Workers Compensation Class Code 9015 draw so much likely unwanted attention? Let us look a little closer.

I was catching up on my Worker Comp reading yesterday when I came across this article by NCCI on the most reclassified code Workers Compensation Class Code 9015 Building or Property Management—All Other Employees.

The reclassifications are due to in-person physical inspections by NCCI. The changes are not the result of an agent, insurance carrier, or premium auditor changing the codes.

According to NCCI, the 9015 classification terminology out of the Basic Manual, not the Scopes Manual, is:

Applies to the care, custody, and maintenance of premises or facilities. Not applicable to an owner or lessee of a building who occupies the entire or principal portion of the premises for manufacturing or mercantile purposes. Includes doormen, security desk personnel, elevator operators, gatekeepers, and concierges. Separately rate maintenance or repair work at any location where the owner or lessee does not also perform janitorial services. Includes real estate management companies and real estate investment trusts.

License Public Domain-by. Corrina Duron

Clerical and sales employees are assigned to Code 9012—Building or Property Management—Property Managers and Leasing Agents & Clerical, Salespersons, including those who operate at a separate location from the properties managed.

Employees working exclusively for a country club operation run by a hotel, resort, condominium, or other community association are assigned to Code 9060—Club—Country, Golf, Fishing or Yacht—All Employees & Clerical, Salespersons, Drivers.

The third bullet point creates the most questions out of any classification codes mentioned in the article. We are contacted rather often by employers that are confused when they are reclassified into 9060.

The 9060 Code was not mentioned in the NCCI articles as the Class Codes where 9015 employers find themselves post-inspection. The three codes where the 9060 Code employers are reclassified into consist of:

Code 9012—Building or Property Management—Property Managers and Leasing Agents & Clerical, Salespersons, including those who operate at a separate location from the properties managed. For this one, I highly recommend you read the original NCCI article. You can download the PDF if you follow the link in red above.

The rating bureaus (NCCI,WCIRB, etc.) allow the extra six months for full claim reserve development. Remember that Total Incurred = Paid + Reserves. The total incurred figures will be reported to the rating bureaus.

Your target date to start a reserve review is usually three months after renewal. For January 1st renewals you are running 45+ days behind schedule. The upcoming Unit Statistical Date (Unit Stat Date) remains ever important. Your reserves for claims from the last three to four years peg to your Experience Mod on that date.

Claims departments usually review your reserves for reduction at closing. One phone call or email will not suffice for a good reserve review. Obtaining a full loss run just after renewal and starting then will give you a full six months to track, review, and if needed, negotiate reserves.

The recommended best method involves a year-round loss run reserve review and communication with the claims adjusters (by email) on a regular basis. Employers that begin a year-round review program are surprised when their reserves and eventually the E-Mod drops to an acceptable level.

There are many articles on how to do a loss run and reserve review in the articles I have written. For more info, you can click the Categories or Tags at the bottom of this article. Also, use the search box at the top right to find more articles on starting a reserve review schedule.

Is A 2018 Soft Market For Workers Comp Here or Is It Something Else?

A 2018 soft market began to show up in some of the data this year. In fact, over the last week I have been interviewed for articles on the current WC market conditions.

Interesting enough, the carrier rates over the nation have fallen faster than the Rating Bureau advisory rates. California has recently seen this effect. In CA, the advisory rates from the WCIRB (Workers Comp Insurance Rating Bureau) are referred to as pure premium rates.

Is this a sign of a soft market or something else?

Wikimedia License – Nick Hobgood

The soft market or at least a softer market may have nothing to do with the drop in carrier rates compared to the advisory rates. Why?

Everything in workers compensation rating has an offsetting variable or variables. With the artificial increase in Mods, the carriers’ underwriters actually saw a chance to make their respective carriers look wonderful as they decided to drop rates ahead of the curve.

The artificial increase in Mods was initiated in 2013 by NCCI – better known as increasing split points. The split points between the primary loss in a claim and the excess loss changed dramatically. From 2013 and forward the primary loss (think expensive part of claim) increased from $5,000 to $15,000.

The offsetting variables were that state rating bureaus and NCCI reduced their advisory rates as the increased Mods caused the premiums to increase overall. Carriers’ combined ratios are now reaching to over 100% which makes Workers Comp profitable again.

Recently, California’s WCIRB dramatically changed the Mod formula. It is now based on the size of the respective employer. In my humble opinion, the carriers saw they could be profitable while reducing rates as the Mod will increase the Mods enough to allow for sharper rate decreases than the WCIRB’s recommended rates.

I am basing my opinion on having seen small company Mods increase over the last few month with no increase in claim values.

One only has to look to all of the states decreasing their recommended rates – sometimes by over 10%. Did safety and risk management fuel the lowering of rates? I would hope so, but the results would not be so dramatic.

The picture above is the soft orange lion coral. It looks rigid, but is extremely soft.

The bottom line is that one has to think that there is some variable out there that is the offset to the sharply decreasing rates resembling a possible 2018 soft market condition. Time will tell over the next three years to see the full effect.

2018 Android Workers Comp Apps – Another Trip Into The Rabbit Hole

My 2018 Android Workers Comp Apps search was performed using a laptop, not a smartphone. The rabbit hole reference, of course, is from Alice in Wonderland(c).

Pubic Use License Granted

The laptop use made what could be a very difficult smartphone task much easier. The search I used can be found here. Many apps from claimant attorneys appeared in my various searches.

The rules used were the app had to :

Be free

Not be a veiled advertisement

Have at least 10 votes on the ratings – this prevents the app providers from rating themselves highly. – this is a new requirement

Have at least 3 stars or higher rating – this is a new requirement

Have some useful function – (that it actually worked)

Be closely related to Workers Comp

Appear in the Google Playstore – some websites provide apps that are not in the Playstore. A great marketing idea would be to put them in the Playstore as blatant advertising. Some recommended apps no longer appear in the Playstore.

The Playstore moniker kind of dilutes a business-type app search.

The apps that fit the rules were:

WC Policy Verification from NCCI – a former app recommendation winner

NovaMC (Nova Medical Centers) – greatly improved over the last few years

Some of the apps that were reviewed before this year were:

MyMatrixx Mobile

EMC Smart Mod

MyCare Corvel

Coventry Connect

I did not include the prior 4 apps as they did not have enough ratings.

A few new apps that looked interesting were:

Road Cash – A way for injured employees to tally and request travel reimbursement- reduce headaches for adjusters?

Zenjuries – updates everyone involved in WC claims process – goal is to no isolate injured employee – has templates to help inured employee understand the care of their injured body part

Let me have the envelope please, and the winner is…..(hint – it is in orange)

I will cover the winner next week.

The surprise is the lack of good apps – the year is 2018, can we have some apps please? This goes to my lack of technology concerns in the Workers Comp arena for the past 10 years.

2018 Workers Comp Resolutions Are 2017 Refinements

My 2018 Workers Comp Resolutions must start with, of course, the 2017 Resolutions. BTW, Self Insureds will be on the dais next week. So, let us get to it. The thirteen 2017 resolutions were: (sorry if you have triskaidekaphobia).

Understanding the mechanics of the WC process – from the start of the policy renewal until final premium audit – read everything that has to do with the policy. Most of the process is laid out in the policy. A highlighter is your best tool.

Following the Six Keys to Workers Comp Savings – the prior link has all of them.

Reading the newsletter that J&L provides almost every week. You may sign up at the top right of this page.

Bonus – having a working relationship with your agent, not just at renewal.

Another Bonus – take any class or attend any meeting or seminar that your insurance carrier offers to you.

Last Bonus – Safety is the key to staying out of the Work Comp system.

2018 Workers Comp Resolutions List

The point by point review of the 2017 will help complete the 2018 Worker Comp resolutions list. Yes, the 2018 Workers Comp resolutions are just making sure you covered the 2017 ones completely.

Grab your policy – the first step in #1 above – Read it. It is boring. I agree. Read it all the way through like a book. There are many surprises in there such as audit rules. How about the Endorsements you may have received after the policy commenced? You may have received many Endorsements. You cannot go any further until you take this first step. No, honestly, you have to read the policy. If you do not have the time, can you delegate the task?

Print out the Six Keys page from above. Did you do any of those? The Keys contain a large amount of premium savings. Yes, you have my permission to print them. Those Six Keys take some work. Once they are in place, the job to sustain them becomes easier.

Did you understand your Work Comp Premium audit? If so, then writing the premium check becomes an easier process. Check with #4 before mailing that premium check.

On your premium audit bill, sometimes called a Premium Audit Statement, did you see the Experience Modification premium? Anything above a 1.0 is a debit mod that cost your company extra premium. In other words, you have created your own quasi-tax on your company. Have you looked at your Experience Mod Sheets? Check with NCCI,WCIRB, or the appropriate rating bureau or contact us. Those sheets explain how your Mod was calculated right down to the Total Incurred

Where are you last 5 years Workers Compensation information? Did you scan it in to a thumb drive? One day you will thank yourself for doing that one easy task. You may need to reference it quickly at sometime in the future.

Did you call your Workers Comp adjusters and introduce yourself? Why not? That alone can save you premium dollars. Communication is the key in Workers Comp. After that first call, email, not text, the adjusters working on the files. Get their email addresses when you call. You will be glad to not have to dig for an adjuster’s email address if you need to inform them of a claim development or send them an attachment ASAP. Emailing is always the preferred contact method as your emails become file documentation for you and the claims adjuster.

During that conversation, did you let them know that you follow the Six Keys from above? The first three of the Six Keys are critical for adjusters to know that you are doing those tasks.

Do you have a claims review scheduled for the end of the year or at policy renewal? You may be wasting your time. If you want the reserves lowered, that should coincide with your Unit Statistical Date. A claims review at renewal does little good, but then again a claims review with the claims staff is never a bad thing to do at any time.

Think of renewing your policy on January 1st or July 1st the same as flying on the Holidays. The airports are crowded which naturally brings down the service level. Check with your agent to get the date changed if you renew on those dates.

The newsletter is a freebie. You can even look for it on Twitter, LinkedIn, or Facebook. Signing up for it takes one minute. I usually write two to three articles a week and throw in a Classic or a post that went viral. We published the newsletter Thursdays at 2PM Eastern time.

The relationship with your agent should not be based on talking to them on the phone a few days before renewal. You are paying them to address your policy questions. Do not be shy. Almost all agents welcome an email every now and then from their clients.

I am writing this while the NWCDC annual conference in Las Vegas is occurring this year. It is one to attend if you are serious about Workers Comp. Just be ready for the number of people that attend this conference. Most carriers offer some type of Workers Comp training. Even if the training is a webinar, it will always be worth the time spent. If your carrier offers anything on loss prevention or safety, sign up for it immediately. Check out this article for 24 free webinars.

The best way to keep a claim from costing your company premiums is by not having a claim in the system. Safety is the key. Your Experience Modification Factor can be thought of as a safety score.

The 2018 Workers Comp resolutions are not anywhere near an exhaustive list. The resolutions were drawn from what I had in front of me in late 2016 and early 2017.

The Workers Comp self insured resolutions will be covered next week. Many of my Risk Management friends, clients, and acquaintances always remind me to include the self insurance market. I have to agree with them.

Workers Comp Writers Block Not A Fun Time

Having Workers Comp writers block for the first time in 11 years ended with this article. The last three weeks contained the longest workers comp writers block for me.

Wikimedia Commons – Drew Coffman

The comment on writing into a funnel means that if I covered a subject in 2008 and now write about it again, the Google search algorithm penalizes duplication.

Matt Cutts, the Google spam guru rep says Google does not penalize duplication. However, if you write two articles on the same subject, each are partially devalued as Google makes a choice on which article gets the juice and ranking.

Of course Google is trying to remove spammers from their rankings. No blame goes to Google.

The last article on the .85 Combined Ratio announced at the NCCI Virginia Conference created quite a bit of buzz. In a roundabout way, Workers Comp carriers consider the market to be potentially profitable.

I began the blog to publish articles on workers comp premium audit and reserves. The writing funnel discourages me from continuing to write on those two subjects.

Many workers comp authors began damning the system a few years ago to get attention. It seems they are still at it today. We decided a few years ago to stop publishing articles that bash one facet or group of people in the Workers Comp business. I just finished reading an article of that sort.

Is it me or has there been way too many articles on opioids (not counting research WCRI, NCCI, etc.)?

One very positive note entails the updating and improvement of all 1,672 articles. Our web consultant contractor works tirelessly to improve the look (graphics, text spacing, and Google ranking) of the blog and website. I have spent 30 – 40 hours in the last two months reviewing and upgrading some of the text.

I begrudgingly removed 30 -40 articles which provided no knowledge advancement in the area of Workers Compensation.

1,672 articles now exist in this blog. Feel free to search them at the box on the top right of the screen.

PS I cannot call it writer’s or writers’ block as the apostrophes in Titles make the HTML go crazy.

The California State Senate recently passed a measure AB 61 that requires the Governor to appoint a small business member to the WCIRB Board of Directors. I think this is ingenious. Small businesses have experienced a rough ride due to two different rating changes over the last decade.

From the Senate Counsel’s Digest:

Existing law establishes the State Compensation Insurance Fund to be administered by a board of directors for the purpose of transacting workers’ compensation insurance and other public employment-related insurances, as specified. Under existing law, the board is composed of 11 members, 9 of whom are appointed by the Governor. Existing law requires the Governor to appoint the chairperson and one board member from organized labor, as well as appointing board members, other than the labor member, who have specified qualifications.

This bill would require one of the board members that the Governor appoints to be a current or former small business owner who is or has been a small business owner for more than 5years. years and who is a State Compensation Insurance Fund policyholder, as specified. The bill would require the exemption from specified qualifications that currently applies to the labor member to also apply to the small business owner member. The bill would provide that the small business owner member shall be appointed to the first board vacancy that is not left by the labor member or the member with an auditing background.

The two interesting facets of the bill are:

SCIF policyholder – why SCIF?

Had to be a small business owner for 5+ years – (mark of success?)

Member with auditing background cannot be replaced by small business member – interesting exclusion

If I remember correctly, NCCI had one “outside” board member. The member was a local attorney in Boca Raton, FL – the headquarter city of NCCI.

The NCCI Board of Directors has now changed its makeup to include two megalithic companies’ Senior Management. The North Carolina Rate Bureau’s Workers Comp Governing Committee (similar to a Board of Directors) has no one on the committee such as public members even though some of the other governing committees have Public Members.

Many of the newer rating bureau rule changes will heavily impact small businesses. The WCIRB changed one of the small business rating discounting factors in 2013 that heavily penalized unsafe small employers. The newest 2015 X-Mod changes may impact small businesses – once again – especially the unsafe ones. To be fair to the WCIRB – the theme is penalizing small unsafe employers, not really all employers.

I will attempt to keep up with the Governor signing or vetoing AB 61. One would be shocked if Governor Brown did not make it law.

Many employers are now feeling the pinch when their Mod increases or stays above 1.0. A few years ago the Experience Mod Rating formula was changed by NCCI. The Primary Loss part of the claim increased from $5,000 to $15,000.

The Primary Loss equates basically to the part of the Total Incurred that is not discounted. The Excess Loss has a discount factor that is applied to the reserves above the primary loss.

An E-Mod of 1.04 from the Workers Comp rate bureaus can actually have an employer shunned from bidding on governmental contracts. How do I know this is the case? Over the past few weeks and when I wrote the article earlier this week, I heard from quite a few employers with that very concern.

The work comp rate bureaus will usually say that we only process the numbers and generate Mods. That may be true, but now many governmental agencies and large employers producing bids think otherwise.

One of the bid considerations for major contractors and governmental agencies is having a 1.0 E-mod or STOP HERE and go no further before the employer produces a bid. It is not a bid consideration. It is a denial.

How should the Rating Bureaus fix the situation? They should not be responsible. The two parties responsible consist of the employer and the contractor.

A great suggestion to the Risk Managers would be to stop at the first number to the right of the decimal. For instance a Mod of 1.08 equals 1.0. In my opinion an employer with a 1.08 Mod is not that much more risky than an employer with a 1.0 Mod.

I have spoken to a number of Risk Managers that say – hey, I have to draw the line somewhere.

The other side of the coin points to the employers. Spending funds now for safety remains the answer. The expenditures will pay off in time. The business owners and the Senior Management of companies need to allow time for safety efforts to take effect.

Throwing funds at safety for one year and expecting the Mod to lower immediately is not the way the Workers Comp system works. Many safety managers and in fact, risk managers were shown the door because the company’s Mod did not move. The Mod process takes four years to show fully.

As the author Charles Givens once said in his book Super Self – if you want to win in someone else’s ballpark, you have to play by their rules. The Work Comp Rate Bureaus are the ballpark. A great Safety Program keeps you playing in your ballpark. No injuries mean you get you play in your ballpark.

In the 1990’s, I decided to see if my three financial keys affected the files as I had anticipated from the beginning. I performed two studies on two very different groups of governmental WC claim files. My theory on the financial keys sustained my theory all throughout the two sets of files.

Medical control by the employer reduced costs by 75%. Each employer we have assisted in cutting workers comp costs saved premium or budget dollars when using medical control to direct their employees to certain physicians. We stress to each client to have a medical network in place and not just have the company Doctor in place.

Study after study has shown that employees use the physicians that the employer recommends for initial and subsequent treatment for their work related injuries regardless of whether the employee or the employer has the medical treatment control.

Therefore my studies and experience say that medical control and medical networks save big workers comp money. Additionally, the network or medical control provides good conservative care for injured employees. The win-win-win situation creates a great bond between employer and employee.

NCCI Recent Press Release

NCCI, the largest rating bureau for Workers Comp released a study at their Annual State of The Line conference last week. Their study on Workers Comp medical networks indicated a great deal of premiums are saved by using medical networks.

WCRI Recent Study Release

WCRI (Workers Comp Research Institute) recently released a study that seems to contradict my findings along with NCCI. WCRI and my findings have always agreed right down the line. In fact most of the time, NCCI, WCRI, and I agreed on almost any aspect of Workers Comp.

For further reading, the links below will take you to each study’s summary. Unfortunately, my study was informal. I do not keep all the data nor did I publish the study as it was a very ad-hoc analysis.

How Can Workers Comp Statistics Madness Be Cured?

One of the supposedly important Workers Comp Statistics based articles appeared last week. The study and article compared (Affordable Care Act) Medicaid expansion states with states which decided not to allow the expansion. The conclusion drawn was:

States that allowed Medicaid expansion under the Affordable Care Act experienced a lower Workers Compensation Loss Ratio than the states that did not allow Medicaid expansion.

I coined the madness term back in 2013. The madness originated from other articles and studies, not insurance or WC.

The main thesis consisted of comparing the Workers Comp Loss Ratios <<<not one of my favorite workers comp statistics. The reason why consists of better statistics (hundreds) provided by actuaries and rating bureaus. If you disagree, please use our contact us or comment on the article. Many proponents think it is one of the best workers comp statistics. I think otherwise.

The researchers often miss the intervening statistic. The old study example of ice cream sales compared to assaults comes to mind. The more ice cream sold equates to higher assault rates. However, the Summer is the intervening statisticor :

The E-Mod is a delayed system. You cannot tell actually what happened fully in any state with WC until 4 years after a policy commences. The aforementioned loss ratios are not designed to be a rating factor of any type. My actuarial background says no.

If your company is self insured, then the Loss Development Factor (LDF) reaches further into the past – up to 10 years. To say the Loss Ratio produces a premature measurement is a large understatement.

Therefore, as with ice cream and assaults, one should examine other intervening variables – LDF or E-Mod. Workers comp statistics can be great – with the right ones.

Work Comp Fee Schedules Are Low Cost Risk Management Technique

I have covered Work Comp fee schedules very often in articles written over the span of my insurance career. The easiest Risk Management technique available is one that state governments can actually help out employers almost directly.

Work Comp fee schedules are in 43 states as of today. Very often, when a rating bureau such as WCIRB or NCCI performs a study the results leave no doubt that fee schedules are one of the platforms where a state government can actually help the employers in their respective states.

WCRI (Workers Comp Research Institute) has recently published a study which takes a very different view of fee schedules – but ends up with the same conclusions.

According to previously published WCRI research that also agrees with the NCCI studies on Workers Comp versus group health: Workers’ Compensation pays higher prices than group health. For example, one study found that in some states, workers’ compensation prices were two to four times higher than group health prices.

The following are among the study’s findings (written by Dr. Oleysa Fomenko of WCRI)

(c) wcrinet.org

If the cause of injury is not straightforward (e.g., soft tissue conditions), case-shifting is more common in the states with higher workers’ compensation reimbursement rates.

In particular, the study estimated that a 20 percent growth in workers’ compensation payments for physician services provided during an office visit increases the number of soft tissue injuries being called work-related by 6 percent.

There was no evidence of case-shifting from group health to workers’ compensation for patients with conditions for which causation is more certain (e.g., fractures, lacerations, and contusions).

The database used for analyses is unique in that, for a given employee, it shows whether a given medical encounter (visit) was paid for by group health or workers’ compensation. This study along with the NCCI and WCIRB studies show a very heavy need for work comp fee schedules in all states.

California Insurance Commissioner Approves 2017 Changes

California Xmods also known as Experience Modification Factors calculations are changing drastically in 2017. A very important term for California employers in the next few years is the term variable split point.

Split points are the amount at which the Total Incurred for a claim has much more of an effect on an employer’s X-Mod.

Variable split points are not the same as the split point changes enacted by NCCI over the previous years. NCCI now has its split point set at $15,000 from $5,000 just a few years ago. Search the term split points in the search box for more articles on the changes by NCCI.

How variable split points work is the total expected losses for the Experience Period have much more of an effect than just the prior California split point of $7,000. In other words, the size of the employer will determine the split point.

According to the WCRIB:

Approximately 90 Primary Threshold split points

Values range from $4,500 to $75,000

Ranges based on employer’s total expected losses in the experience period

Final values will be updated and proposed to Insurance Commissioner in 2016 WCIRB Regulatory Filing

The interesting fact is the effect on California Xmods may not be known until the Insurance Commissioner approves the final levels.

The most important fact is the 2017 and forward X-Mod system is going to punish employers that have repetitive accidents. The concept of a variable X-Mod will also lessen the effect of one huge claim on a small
employer.

The claim amounts up to split point are used fully in x-mod calculation. This is the same as NCCI’s split points with one major exception.

Claim amounts above split point are not used in x-mod calculation. One of the main differences between the NCCI and WCIRB split points is that NCCI still uses the Excess loss in its calculations. NCCI excess losses are in a roundabout way – discounted. California will be basically creating the split point as more of a ceiling.

Unsafe smaller employers have already seen a major change to the way their X-Mods are calculated by the WCIRB. I attended a 2013 WCIRB conference which introduced a new X-Mod formula that removed a credit for small employers.

Workers Comp Resolutions

Having online claims access is the best and up-to-date way to track your reserves and claim payments. It is now 2016. There are no excuses for not having direct online access to your claims and reserves. This should be one of the main questions to ask your agent, carrier, or TPA upfront at policy or contract renewal. Many carriers have smartphone apps for 24/7 easy access.

Have the most current copy of your company’s NCCI or Rating Bureau sheets. Nothing should ever happen to your rating information without your knowledge. As with #1, it is now 2016, so relying on paper just does not cut it any longer.

Know your policy status. You cannot improve your current situation if you do not know which direction you are headed with your policy.

Understand the premium audit process. Your policy year is not over until the final premium audit bill is received from the carrier.

Know that safety is the crucial element. The important Schedule Debit/Credits also directly result from your safety regimen. Many companies have seen short-term budget reductions by reducing/removing their safety staff. This will cost many of those companies in the long run.

Bonus – building a Workers Comp contact sheet with email addresses. Your agent and claims adjuster(s) should be on the top of this list.

Explore all options such as captives, large deductible, opt-out, etc. Your company can do this research online if you know where to find the applicable information- added for 2016. Use search engines such as Google and Bing for the research.

WCIRB Long Tail Medical Expenses

The WCIRB Long Tail Medical Expenses Study was one of the better studies I have seen from them over the years. The WCIRB of course, is Workers Compensation Insurance Rating Bureau- California’s Workers Comp Rating Bureau.

The study covered 30 years of claims tail data. Yes, that is right, thirty years. I often have discussion with actuaries concerning overvaluing the current data by using such studies as loss triangles, etc. I am a fan of very long data tails as history repeats itself, even in the WC world.

The study can be found here. Please note it is a .PDF file. Kudos are appropriate for the Medical Analytics Director (Dr. Gregory Johnson) and his staff.

The study provided a truckload of good data in 14 pages. This is one of the studies that I recommend reading completely if you are interested in Workers Comp data.

The main discovery is that in the area of Workers Comp medical expenses, California does not operate in a vacuum. In fact, one of the major findings in the study and report is the similarities between NCCI (National Council on Compensation Insurance) and the WCIRB.

NCCI analyzes data on approximately 40 states- sometimes even if the state has its own independent bureau. I found it interesting, yet ingenious that the WCIRB would compare their data one-on-one with NCCI.

One hot topic now, of course, is the use or abuse of opioids. The chart on page 12 of the study compares opioid use between California and the NCCI states as measured in RX payments.

The similarities were almost unanimous except for:

California had a much higher use of Lidoderm 3.8% to 2.5% of NCCI prescription payments

The NCCI states had a much higher use of Hydrocodone 4.2% to 2.0%

California had a much higher use of Percocet and generic Percocet (Oxycodone) 4.3% to 1.9%

The Hydrocodone/Percocet(Oxycodone) percentages almost offset each other exactly.

Two interesting conclusions drawn by the study were:

California medical treatment persists much longer than in NCCI states. One astounding part of this conclusion is that claims are reported long after the date of accident or illness. Risk Managers should be all over this statistic.

The three to six year period of the claims being open is critical in developing the long tail medical treatment claims. After six years, the claims shift from acute treatment to long-term care for aging processes.

There was no much more info in the study that I did not cover due to length.

California WCIRB Rating Formula

The California WCIRB rating formula changes for January 2017 stood out in one of their recent press releases. The WCIRB (Workers Compensation Insurance Rating Bureau) is the rating organization for WC similar to NCCI.

Before I start to analyze the press release, the WCIRB personnel (for the most part) have been nothing but kind and helpful to me. Their educational conferences are always very informative.

The eye-catching phrase in the recent WCIRB press release alluded to the primary loss figure being changed to match the size of the employer. The primary loss figure for California is now set at $7,000.

Small companies took it on the chin in California two years ago with the elimination of the small employer adjustment. Will small employers take it on the chin again in 2017?

The WCIRB is not alone in making major changes to the rating formula. A series of articles earlier in this blog covered the major changes made by NCCI to their rating formulas in 2013.

According to the WCIRB press release there are two areas that will be the most affected by the changes:

Allow the WCIRB to issue debit modifications, in specified circumstances, excluding the unaudited payroll for policyholders who are uncooperative at the time of a final audit. One has to ask as to what is uncooperative and who determines when a company is so called “being uncooperative. Also, what would be the level of unaudited payroll if there are no payroll figures on which to base this figure?”

The second replaces the fixed $7,000 primary and excess loss split point with a variable split point that varies based on the size of the employer. A variable split point enhances the accuracy of the experience rating formula, especially for smaller employers; reduces volatility and provides flexibility for simplifying the experience rating formula in future years. One cannot help but notice the mention of small employers in this second point.

As we all know the per-unit cost of risk under the rating formulas is much higher for smaller companies than larger ones. I hope the new variable split point changes will not be in the same vein.

I will update this post or add additional posts as the new rules for the California WCIRB rating formula changes are published.

Workers Comp Classification Codes

This question on Workers Comp Classification Codes was phoned into our offices last week due to the prior post on Classification Codes. One of the blog readers asked where to find the manual or website that contains all of the Workers Comp Class Codes.

The employer had received a workers comp audit and subsequent billing recently. The employer did not notice they had new classification codes on their policy and at time of audit.

The one main determinant is what states or states are covered by the policy. There are many independent rating bureaus that have their own classification codes manual such as California or Ohio.

The NCCI out of Boca Raton, FL covers most of the individual states and covers virtually all of the interstate (multistate) ratings including classification codes.

The Scopes Manual is produced by NCCI. This is the manual which contains all of the workers comp classification codes. However, referencing the manual and attempting any type of dispute comes with a Goliath caveat.

We receive a large number of emails and calls from employers that have decided to DIY on this subject. The employer has often referenced some type of classification manual and disputed the classification codes.

The carrier accepted the codes which actually increased their earned premium over what was contained in the audit billing.

One has to also be very careful when attempting to switch class codes if your company has a very high Mod (E-Mod or X-Mod). This is one of the most frequent ways to actually end up paying more premium.

If your company has a high Mod and then changes workers comp class codes to less risky ones, your Mod may increase enough to offset any type of refund that you would be owed and even result in a higher bill.

We usually receive the phone call after the Classification Codes have been reassigned and the Mod has spiked. There is not much we can do at that point.

Recalculating (re-promulgating) the Mod should be part of the dispute process.

The increased Mod is the result of the intricacies of the rating and Mod formulas. For the most part, Mods and class codes have an inverse relationship of sorts.

There are many articles in this blog concerning the premium dispute process. Feel free to use them to aid your company in researching the workers comp class codes.

This post was not meant to discourage any employer that has questions on their policy and audit to find out the correct answers or to dispute any audit.

This is one of those misunderstandings that seem to pervade Workers Comp.

Unfortunately your company’s losses were reported to the rating bureaus (NCCI, WCIRB, etc.) and you do have a Mod in most cases.

Of course being self insured would usually preclude your company from having a Mod. However, you are not a self insured if you have a large deductible policy.

A large deductible policy is differentiated from a small deductible due to the level of the deductible. Most rating bureaus including NCCI consider any employer with a $100,000 deductible or larger as a large deductible employer.

Large deductible Mods will be calculated by using the loss data that is reported to the rating bureau on your Unit Stat Date similar to other WC policies.

Even though I have written on this subject often, this is one area where misunderstandings crop up- especially if a company decides to not insure under a large-deductible plan at renewal.

The former large deductible company is then presented with an E-Mod they never even realized was in place.

Please note that I am writing on a limited point in what can be a complex issue. Many large deductible plans are custom-built for employers. However, the loss reporting requirement of the rating bureaus still applies to these policies.

NCCI – Post-Accident Safety

Post-Accident Safety

Post-accident safety glitches can be very expensive for employers. Post- accident safety can be thought of as risk management protocols in the next few hours after a Workers Comp accident occurs in the workplace.

The terms Loss Reduction or Loss Control are interchangeable with post- accident safety. In my presentations, I like to refer to not performing immediate protocol actions (within 24 hours) as failures in post-accident safety.

Keeping an employee safe does not stop at the occurrence of an accident. The First 48 hours set the tone and costs for the claim. I have covered post-accident safety in detail with other articles on this blog.

Six Keys or Secrets

The injured employee still requires a reasonable amount of post-accident safety. The Six Keys To Saving on Workers Comp $$ that I had written in the 1980’s have not really changed except for adding in two more keys.

Making Workers’ Comp a Priority – do you just write a check to the TPA or carrier?

Understanding The Premium Audit Process- how your final bill has been calculated.

NCCI Study

NCCI just published a study that agreed with what everyone in the WC community knows will cost employers dearly. The one area that astounds me to this day is the lag time on reporting injuries by employers. Lag time is likely the easiest to fix that will result in huge savings on WC for employers.

NCCI has said that employers that report claims that pay 51% more than employers that report timely. Post-accident safety involves the time taken to report a claim. Time is of the essence in reporting claims to a carrier or Third Party Administrator (self-insureds).

The two massive informal studies that I performed on public entity claims confirmed NCCI’s report. However, the number I came up with for long reporting lag times was in the neighborhood of 400%.

Many employers will consult with me on claims that have gotten out of hand and are looking for any type of claims cost reductions. Some of the claims have the hallmark of late reporting. Some are setting in multiple brown folders on my desk.

Online first notice of injury reporting has become so popular over the last few years.

Over the last 30 years, the Six Keys have not changed overall. I had thought that timely reporting would be a non-issue by now. Timely first reporting was the first key as I had thought lag time would have been eliminated by 2015. That is not the case.

NCCI – Day of Accident Reporting

According to NCCI – (one anomaly of sorts is )”claims reported on the day of the accident are some of the most costly claims. This is expected because serious injuries often require immediate medical care, which triggers notification to the insurer.”

Rate Reductions

Rate reductions news published by a state rating bureau or NCCI is always a very positive statement in an industry led by negativity.

The rate reduction news is then re-published over and over again by various Workers Comp outlets. There is still one piece of the puzzle that is lacking in the positive news.

Rate reductions are basically where a rating bureau analyzes actuarial data and subsequently publishes lower advisory or recommended rates for some or all of a state’s classification codes.

The buzz now is that California’s WCIRB (rating bureau) has recommended a 10.2% rate reduction which may seem contrary to the veiled WC crisis the state has been experiencing for the last seven years.

What does the reduction in advisory rates mean? – actually not much or even nothing. I have written in this blog many times concerning (and there are many confusing terms) deviated rates or Loss Cost Multipliers that are filed by each carrier. There are some that are over 300% of the actual advisory rates.

In very simplified terms, an insurance carrier can negate an advisory rate by filing a rate increase that matches the rate decrease. If I am ABC WC Insurance Company and I do not wish to decrease my insurance rates, I will change my deviated rate to match the decrease.

This situation does not happen that often. However, this situation has happened even more severely as a major carrier increased their deviated rate extensively last year in CA. Insurance carriers do have a team of actuaries that produce their own numbers that may not agree with the actuaries at the rating bureaus.

The insurance carriers are going to apply their own rates to remain profitable.

I will provide an example with numbers next week. I try to keep most articles to 300 words or less and this one is getting a little long to read.

Even with discounts, the WC fees may not be a great reduction when compared to group health insurance:

One fourth of WC payments are 30% more below the Maximum Allowable Rate (MAR)

One fourth of general health payments are 63% or more below the MAR

Fee schedules influence more than just the small portion of charges that exceed MAR

Fee schedules may have the unintended consequences of increasing some payments

A discount from a fee schedule amount does not ensure a competitive price.

To determine the effectiveness of fee schedules, it is important to consider market rates.

Perverse Effect Of Fee Schedules That Are Too Low

Do states that have low WC prices which pay lower than group health cause access to medical care complications?

42 states in US have fee schedule, 6 states have fee schedule rates below group health for intermediate physician office visits.

WC office visits in lower fee schedule states

usually bill as more complex office visits

physician-dispensed medications

From a California study, when the physician fee schedules are frozen, then unfrozen, then frozen again, the physician stopped (while unfrozen) bill complex office visits. When the fee schedule was frozen again, the physicians began billing for more complex office visits.

Radiological studies that were reduced by fee schedules resulted in most billings for unscheduled services as the hospital would receive 75% of charges. (Florida Study). Scheduled radiology was paid at a much-reduce fee due to the 2003 reforms.

Treatment and billing practices were changed to sustain revenue such as medical providers increasing the number of services and the intensity of the services.

My EMod (XMod) – When Can You Obtain It?

How do I obtain my Emod (Experience Modification Factor) question was emailed from a medium-sized company from Kansas.

We receive this question regarding EMods often from employers that wish to budget for their upcoming Workers Comp policy year. A large number of employers also want to avoid the last minute E-Mod (X-Mod) surprise.

The earliest an EMod can be promulgate d (calculated) is 6 months before the policy ends in most states. Your loss run actually has the necessary data to calculate the E-Mod. However, there is a very large caveat here.

Selecting the correct levels of the proper variables from the loss runs is beyond critical. The Rating Bureau’s (NCCI, WCIRB) EMod formula is very specific on the data needed to end up with the correct E-Mod. Your company may need a consultant to calculate the E-Mod before it is produced by the rating bureau.

Your company’s time may be better spent earlier in the year obtaining your loss runs and then reviewing the outstanding reserve values. Your company will usually have six months after your new policy renews to review your loss runs for next years’ E-Mod.

There are numerous articles in this blog concerning loss run review schedules. You should check those out in detail by searching for the word “schedule” in the search box.

This timetable for loss run review may sound a bit confusing. The main thing to remember is to get started on next years’ E-mod as soon as possible. Safety is always the best way to reduce your E-Mod.

As a last resort, your company can always request a copy of your E-Mod (X-Mod from your respective rating bureau. The lion’s share of those will be provided by the NCCI or WCIRB. You may Google those terms to find the proper contact information. If your agent is timely about providing your quotes then you will likely receive the E-Mod not long after it is produced by the rating bureau.

By Joining NCCI Texas Opt Out Could Fade

Did Texas opt out of Its non-subscriber system? Texas has decided to join the Experience Rating System supplied by NCCI. According to a fellow WC blogger, Texas may also look to remove the opt-out provisions in the law for the construction industry. That is a major step in starting to remove the Texas opt out provision for employers.

One has to wonder if NCCI had an impact on or at least suggested the move to a full non-opt-out system in Texas. The Law of Large Numbers may not be a concern as Texas is such a large state. Then again, if a certain market segment opted out, then the law may be applicable.

One of the most surprising figures out of Texas is 50% of all construction workers in the state are undocumented immigrants. Specialties like concrete and drywall probably have more than 50 percent undocumented workers according to the article.

This may cause the construction companies that opt out to have a distinct price advantage over fully-insured companies when submitting bids on contracts. This situation is not limited to just the construction industries. Any Texas company could use a prci

One has to also ask – if Texas decides to end its opt out program for the construction industry, will Oklahoma follow suit in its opt-out program? This would have seemed far-fetched until the state decided to join NCCI’s rating system instead of their own.

Texas Officially Joins The NCCI System

Earlier in the year, The Texas Department of Insurance signed order 3455 adopting NCCI’s Statistical Plan for Workers Compensation and Employers Liability Insurance (Statistical Plan), including Texas exceptions. This manual becomes effective for units with policy effective dates January 1, 2015 and subsequent, and is optional for prior policy effective dates.The state of Texas will also have many exceptions to the NCCI manual. The state may, over time, decide to remove more of the exceptions. Adopting the manual does not mean Texas cannot reject any part of the NCCI manual. They do not have to necessarily accept the rates promulgated by NCCI. The next few years should be interesting as Texas was very independent in its WC operations. One area to note is that polices prior to January 1, 2015 may also be affected by the adoption of the NCCI rules. One has to wonder if NCCI will push Texas to not keep the opt-out system which is in place presently in Texas. See tomorrow’s article on one major step that Texas has taken in the area of construction. Texas has at least started the conversation on not allowing construction firms to opt-out of WC coverage. Most of the companies that we have consulted with that decided to opt out of WC coverage for their employees have ended in disastrous results once they have a series of claims or a few severe accidents. West Virginia was very successful in adopting the NCCI manuals and ratemaking process. There have been many reductions in the rates charged to policyholders since the switch to NCCI. Texas policyholders should see rate reductions in the future. However, the opt-out system may be shown to be a violation of the Law of Large Numbers. This may affect any type of rate reductions.

California’s Rating Bureau WCIRB Webinar

The Workers Compensation Insurance Rating Bureau (WCIRB) is the rating bureau for California’s Workers Compensation system. In June of this year, the WCIRB had its annual conference. The webinar and associated report resulted from that conference.

WCIRB President and CEO Bill Mudge commented, “This Report and its widespread distribution are directly aligned with our mission to provide objective, actuarially based information and data that informs and is integral to a healthy workers’ compensation system. We believe all stakeholders – including employers, agents and brokers, insurers and policy makers – will find great value in this new annual perspective on California’s workers’ compensation system.”The annual WCIRB report can be found here. It is a PDF file. The report looks strikingly similar to NCCI’s reports. You may register for the WCIRB webinar here. The webinar is August 7th at 11AM Pacific time. There is a section in the report that covers SB 863. Most of the conclusions are TBD (To Be Determined) as the results will be more solid in the future as Workers Comp is a delayed-results system. I will post more in the coming weeks after the webinar. Check back soon.

Ohio’s BWC Provides 83.5 Moon Roundtrips

Unsurprisingly, Ohio’s BWC (Bureau of Workers Compensation), a monopolistic state fund, had a very scorching court decision rendered

against it a few months ago. Rather than keep appealing the Appeals Court decision, the BWC decided to settle with certain policyholders . If you have not had the opportunity to read the decision, you should follow the link above and read the decision. The judges lambasted the Ohio’s BWC. The BWC was on the hook for $845 million. The BWC allegedly picked the companies for discounts on an almost random basis. There was no tried and true discount structure as with all the other rating agencies including the NCCI and WCIRB. The BWC was wise for not having the decision reviewed in the Ohio State Supreme Court. The settlement seemed to be a split between $0 and the $845 million owed to certain policyholders. How was the 83.5 moon roundtrips calculated? According to WikiAnswers, 5,026,560 dollar bills stacked end to end would cover a roundtrip to the moon . So, $420 million would be 83.5 roundtrips to the moon ($420,000,000 / 5,026,560).

Ohio’s BWC will likely rectify the situation to a point, but what of actually becoming a non-monopolistic state?

Bureau of Labor Statistics – A Wellspring of Data

The Bureau of Labor Statistics can be found at bls.gov

One of the great providers of Workers Compensation data is the Bureau of Labor Statistics . One has to know where to look to find the best WC data. Some of the data has to be extrapolated for it to make sense. Many Workers Comp statistics are not straightforward. Some of the statistics are basically indirect.

The One Screen data analysis on the calculator page allows almost any type of analysis. This is where I send people when asked where to find great analysis besides the rating bureaus (NCCI, WCIRB, etc).

(WCRI) Holds Annual Conference

One of my favorite data sources- Workers Compensation Research Institute – is holding their conference March 12th – 13th in Boston MA. Other than the rating bureaus (NCCI, WCIRB, NCRB, etc.) the WCRI is a great place for research data for anything to do with Workers Compensation statistics.

Below is their e-brochure for the conference. Follow the links to find out more about WCRI and to register for the conference. Early registration by 1/24/2014 will save your company $100.

In 2014, many of the major provisions of the Patient Protection and Affordable Care Act (PP-ACA) will be implemented. This year’s conference will focus on the likely impact on workers’ compensations systems. Among the questions to be addressed:

What might the market for and the delivery of health care look like in the US in 5 years?

How might workers’ compensation systems be affected….

Vulnerability to cost shift toward workers’ comp?

Opportunities for cost shifting away from workers’ comp?

Impact of increasing size and concentration of health care providers?

Impact of federal government regulation of medical prices?

How will increased coverage affect access to care for injured workers?

What are the major unintended consequences to watch out for?

As with most things in workers’ compensation, we would not be surprised if the effects were very different in different states. We will offer a framework for identifying in which states workers’ compensation systems are likely to be most affected.

As always, other session will present the most recent findings of significant WCRI studies drawn from the following candidates:

Worker outcomes of health care

Cost and use of ambulatory surgery centers

Trends in opioid use

Impact of banning physician dispensing of opioids

Impact of provider choice laws on worker outcomes

Which states may benefit most from Texas-like closed formularies

What are the attributes of injured workers who are uncovered by health insurance at the time of their injury?

The WCRI conference, an annual two-day event, is a leading workers’ compensation forum for policymakers, employers, labor advocates, insurance executives, health care organizations, claims managers, researchers, and others and draws attendees from across the nation. Conference participants will leave with new insights, valuable networking contacts, and a better understanding of key issues in today’s competitive environment.

California’s Rating Bureau (WCIRB)

The WCRIB – California’s Workers Compensation Rating Bureau (similar to NCCI) has written quite a few great plain-language documents on explaining how X-Mods (E-Mods, EMR’s, Mods,etc.) affect employers. One of those can be found by clicking here.

The bottom line is that Mods of any type are calculated with the formula:

E-Mod = Actual Losses / Expected Losses

One of the areas that differentiate the CA WC system from most other states is the split points. The NCCI had recently changed the split points. A quick definition is that any loss values under the split points are much more costly than the amount after the split point.

“Actual losses are segregated into actual primary losses and actual excess losses. The first $7,000 of losses for a claim are considered primary losses. Any remaining amount above $7,000 is considered excess losses. Once segregated, the experience rating formula places additional weight on the primary portion. This additional weighting of primary losses places more weight on claim frequency than on severity and limits somewhat the impact of claim severity in the experience rating calculation.”

As with all Mod calculations from any rating bureau, the emphasis is on penalizing employers that have many accidents while not penalizing a safe employer that had one or two very serious accidents.

There was one major change on how small employers are affected by losses. CA no longer provides a small employer credit. See that article here. If your company has less than $38,000 in Total Incurred your company needs to prepare for possibly a higher X-Mod.

Senate Bill 863 may have some effect on your X-Mod. However, it will not affect how the Mod is calculated.

This month California’s WCIRB produced a new small employer X-Mod formula. Yesterday, I attended a WCIRB Conference in Burbank, CA. The WCIRB makes one work in their workshops. They always put on great workshops.

One of the things I noticed that jumped off the page was the rating formula to calculate the X-Mods had changed considerably. The other main rating bureau in the US – NCCI – changed their formula over three years to reflect a higher split point value. The NCCI basically altered the formula to move more of the rating value from severity-based to recurrence-based.

I had wondered how and if the WCIRB would also change their rating formula to move more towards recurrence -based penalties from severity-based X-Mod Calculations.

Severity-based basically means a discounting factor is included that will not penalize employers that have one severe injury with very high payouts and reserves (Total Incurred). The WCIRB removed any discounting of the Primary Loss. The primary loss level is $7,000. The excess loss is any part of the loss over the $7,000 threshold.

The discounting table (favoring small payroll employers) would discount the primary loss part of a claim. Smaller payroll employers could not easily absorb the effect of one or two major claims. The WCIRB was basically leveling the playing field between small and large employers.

As with the NCCI’s change in split-points, the WCIRB is making sure that safe employers are not subsidizing unsafe employers. By eliminating the primary loss discounting table, all employers will be penalized more for repetitive injuries. Unsafe smaller employers will feel the effects in their next X-Mod calculation.

The WCIRB’s new formula will cause small unsafe employers to pay more for Workers Compensation insurance. I will cover the formula change next time.

Audit Dispute With No Explanation Can Create Bad Vibes

A premium audit dispute with no explanation of why it was disputed can wreck your Workers Comp system.

We are quite often brought into a dispute that an employer has with their insurance carrier’s audit. One caveat to disputing a premium audit is doing so without any documentation other than “the bill increased greatly” or “we are just paying too much for Workers Compensation insurance.”

No carrier, Insurance Commissioner, or Rating Bureau (NCCI, WCIRB, etc.) has ever said to dispute a premium audit without reason was akin to fraud. However, we have noticed the insurance carriers are much more assertive when an audit dispute is undertaken with no reason or premium dispute calculation.

Delaying a premium audit bill payment by using a dispute is slowly becoming a thing of the past with many carriers. I had advised against this numerous times in this blog. A business owner’s or risk manager’s gut feeling that something is wrong with their policy or audit is very often a legitimate concern. No person or business knows your business better than you do overall.

We have not seen any carriers that will just cancel an insured because they have raised a dispute, even if there is no documentation as to the reason. That environment is changing somewhat as carriers have been very patient as they do not want to lose a customer – plain and simple.

However, an unfounded dispute puts the insurance agent in a predicament and can tarnish the relationship between a carrier and their insured employer.

The old “ducks in a row” adage is very accurate in these cases. Also, any undisputed premiums have to be paid regardless of the dispute. The calculation of the amount of the dispute is critical as the employer is supposed to pay the undisputed premium timely. That rule is in every Workers Comp policy written today.

Timely audit disputes with the reasons for the disagreement along with the proper calculations will go a very long way in proving your case to the insurance carrier.

Most Basic Mod Formula

The most Basic Mod formula how is it calculated? We receive a large number of calls and emailed questions on how Mods (E-Mods or X-Mods) are promulgated by NCCI, WCIRB, or State Rating Bureau. One of the most common scenarios is when an employer’s Mod increases over 1.0.A very large number of contractors now require a 1.0 Mod or less for their subcontracting companies. Mods at the 1.0 level are now more difficult to attain due to the recent NCCI changes on Mod calculations. A more accurate statement is that an employer with a Mod of 1.2 or above will find an increasing difficulty in lowering their Mod back to 1.0.I had hoped the contractors would increase the acceptable subcontractor Mod to 1.1 due to the changes in the E-Mod calculations. This has not been the case whatsoever. One contractor had told me that “an unsafe company is still an unsafe company.”

The basic inputs into the Mod are:

Payroll

Classification Codes

Claims Total Incurred (Paid + Reserves)

The Mod formula measures:

Actual Losses / Expected Losses

The Expected Losses originate from the first two bullet points. In other words, what claims are expected for the level of payroll of each classification code? The Actual Loss figure is the Total Incurred for a given year.

As the level of payroll increases, the level of Expected Losses will increase overall. Increased losses are more likely with a higher number of employees or work-hours. If the Actual Losses (Claims) do not increase, then the Mod will decrease in most cases.

There is actually a large amount of “number voodoo” required to calculate the Actual and Expected Losses.

Workers Comp Reserve Reviews And Subrogation

Our Workers Comp Reserve reviews uncover many concerns on claims handling. Subrogation refers to an insurance company seeking reimbursement from the person or entity legally responsible for an accident after the insurer has paid out money on behalf of its insured. In Workers Compensation, we often see three different areas of subrogation that should be of concern to employers.

First, we sometimes find in our file reviews for employers that there was likely a third party that was or at least was partially responsible for the Workers Comp accident. As the file adjusting for Workers Comp claims has become more specialized, insurance carriers and TPA’s have sometimes not trained their claims adjusting staffs in the steps to pursuing subrogation. We do often see that the adjusters have pursued subrogation properly if there was an auto accident involved with the claim.

The second area of concern is that when subrogation funds have been received by an insurance carrier or TPA, there is sometimes no procedure on how to handle these funds inside of the Workers Compensation file. This is an area that may not exist in most claims manuals.

The third area of concern is when subrogation funds have been received and credited to the file. We do see in premium audits for employers that the adjustment of the total incurred was never reported back to the NCCI or State Rating Bureau. This can have a great effect on an employer’s E-Mod/X-Mod if the subrogation recovery was significant. As up to 45 months of data go into the E-Mod, a subrogation recovery must be credited on the day of receipt to the file and the correction reported to the NCCI or State Rating Bureau immediately.

I am not saying that this situation exists in all the files that we see. However, it is of a large enough concern that all employers should monitor if the recovered funds did make it to their E-Mod or X-Mod.

The Experience Modification Factor Basics

A great Experience Modification Factor Factor email came in last week.. Our E-Mod has changed a large number of times over the last year. Why does our E-Mod keep changing? How many times can an E-Mod change in a policy year?

I actually paraphrased the above question from a company that found us through a Google search. The employer operates in 11 states. This makes them subject to NCCI’s Interstate Mod calculations.

Without knowing more on the particular employer situation, I would say the following are some of the reasons for an E-Mod to be changed by NCCI:

Your annual Unit Stat Date – the drop dead date where the Total Incurred per claim is reported to NCCI or other rating bureaus. This is the original E-Mod publication date in most cases.

Current or prior carrier data change – if the carrier(s) reported correction information to the NCCI, then a new E-Mod may be published. The E-Mod may be unaffected from the original Unit Stat date reporting

Late reporting by a carrier – the instances where you prior or current WC insurance carriers report late data does happen. This will seldom change your E-mod. There have been cases where this has made significant changes to the E-Mod.

State approval or changes to NCCI recommended rates – this can cause multiple changes to an E-Mod. We have seen instances of where there were more than 9 changes to a client’s E-Mod due to state changes reported to NCCI.

Premium Audit – some findings at your company’s Workers Comp premium audit may cause changes to your E-Mod such as more or less payroll, etc.

There are many other instances of what would result in an E-Mod change. NCCI or your state’s rating bureau may email or mail you each changes to your E-Mod even when your E-mod number does not change.

If for some reason, you are not receiving your E-Mod changes by NCCI or your state’s rating bureau, a phone call is heavily recommended. We have seen instances where the employer’s address is not a mailing address, but just the physical address. The other possible scenario is an outdated or improper email address.

Even though I only mentioned NCCI and E-Mods, the WCIRB is the rating bureau for Calfornia. They produce X-mods.

The Loss Cost Multipliers Have An Indirect Effect

I recently posted on Loss Cost Multipliers that affect your premium audit. I have received so many inquiries to my last post on the subject that I thought I would cover the subject again. This is an emailed question I received last week. The answer is definitely yes. Loss Cost Multipliers (LCM’s) affect your premiums as much as your E-Mod (X-Mod in CA).Advisory rates are posted by the NCCI, WCIRB, or the state’s rating bureau. Loss Cost Multipliers are each carrier basically asking the state’s permission to deviate from the Advisory Rate. There are two solid facts about LCM’s:

The best way to cover LCM’s is by showing an example. Let’s say the advisory rate for a trucking classification code 7219 is 12.50. This means for every $100 in payroll for trucking in that state, the advisory rate published by the state for a certain time period is 12.50.

The insurance carrier says that to afford their overhead and to make a modest profit, they need to increase all classification codes by 1.35. In our example above, the 12.50 per $100 in payroll now becomes (12.50 * 1.35) per $100 of payroll is now $16.88.

This is an area that employers are usually not privy to as you will only see the $16.88 rate. The rates can deviate heavily amongst carriers in a certain state. I know of one large carrier that is deviating their rates by 2.11 or 211% in a certain state.

In my example the trucking company would pay 12.50 * 2.11 = 26.38 per $100 of payroll for their truck drivers. So, in that case, the trucking company would end up paying out over 1/4 of their payroll in Workers Comp insurance for their truck drivers. Ouch!

At the premium audit, the auditor will, of course, not use the advisory rates. He or she will use the rate after the LCM has been applied to the advisory rate. There are many more steps to getting to the premium, but the LCM is just as important to your company as the Mod. It is another multiplier in the formula.

If you are in the state risk pool due to a high E-Mod (X-Mod), the state will usually provide the rate with the LCM already calculated into the rate. I will cover that next time.

The main takeaway is there are as many different rates as there are carriers in a state. They do not just take a rate and use it. Next time you look at your company’s renewal quote, you will know each rate has been deviated from the recommended rate by the state.

The Large Loss Caps Effect On Premiums

Capping the large losses incurred by an employer is one way for a State Rating Bureau or NCCI to help control Workers Comp costs. Large loss caps function as a stop gap measure to keep one claim from completely harming an employer’s EMod (XMod).

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For instance, if an adjuster sets the reserves on a serious file to $385,000, the complete amount will never impact the employer’s Mod. If the state’s cap on any loss is $175,000, then the employers E-Mod will never be impacted fully by the loss. The $175,000 would be the loss that is input into the EMod formula.

As I have mentioned very often in the past, the idea of the Experience Modification system is to penalize the unsafe employers with repetitive injuries and to lessen the impact of one or two very serious claims.

I was recently reading that NCCI had increased Illinois large loss caps (limitations) almost 300% in the last 11 years from $133,000 to $370,500. Unless I am mistaken, IL now has the highest large loss cap in the nation.

The loss caps can be viewed as another method of keeping a safe employer with one bad accident from paying out more premiums than an employer with large group of smaller accidents. The State Rating Bureaus and the NCCI have this concept as one of the underpinnings of their respective E-Mod systems.

If you have access to your Workers Comp loss runs, there is a very quick way to tell if your company has had one of the caps limit a loss. Most State Rating Bureaus and the NCCI will note it by a “#” next to the total incurred figure.

Temporary Disability Period Shows Signs Of A Crisis

The Temporary Disability period showed signs of deterioration of the return to work function. I was supposed to post on premium audits and classification by analogy. I then read a report from the NCCI that was astounding to me. I will cover classification by analogy next week.

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According to NCCI, The average duration of workers compensation temporary total disability claims benefits increased during the first half of 2011. This is very likely due to the economy and the availability of jobs in a return to work situation.

The average total number of disability days for a workers comp claims is 149 days. Ouch! The number looks even worse if you compare it to a very well-known standard. After 6 months of disability, the likelihood of a successful return to work is almost zero.

The 180 days (6 month) marker is a well-known and accepted standard for returning injured employees back to work. If I use simple math, it could just be me, but I see a very damaging trend in workers comp.

Subtracting the 149 days from the 180 day precipice, leaves 31 days, or basically a month. I may be making a very large assumption, but that means if the average Workers Comp claim increases by one month, then a Workers Comp crisis would result.

If the average length of disability extends beyond 180 days, does that mean that the average claim will be a permanent total claim or one where the vocational rehabilitation benefits would skyrocket?

That is why employers and their Workers Comp claim departments and adjusters (including TPA’s) may have to adjust their paradigms to throwing more effort into the return to work at the very beginning of the claim.

Workers Comp Reserving Is An Art

Should Workers Comp reserving be compared to a Picasso? One of the most difficult tasks that Workers Comp adjusters face (especially inexperienced ones) is setting the reserves on a file. A large number of people seem to think the reserves are just automatically calculated and this is the way that reserves are set on a claim.

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The first time I had come across this was examining a loss run from one of the state funds quite a few years ago. The adjuster had responded to an email saying they did not necessarily agree with the reserves, but they did not want to change them as the unnamed system had set the reserves.

The file, at the time, was horribly over-reserved as the medical circumstances had changed dramatically. The file was going to really affect the insureds E-Mod/X-Mod. I had to actually talk to a VP-level employee of the fund to have the reserves reduced even though the file was obviously top-heavy on reserves.

I should take a step back. The reserves in the file are Total Incurred = Paid + Reserves. The total incurred figure is what the insurance carrier will report to the rating bureau or NCCI. That is why reserves are so important. Reserves are the outstanding funds that are charged to the employer’s E-Mod/X-Mod beyond what has been paid.

In the previous example, the Workers Comp system sat the reserves with little input from the adjuster. This can cause great complications as each injured worker will heal differently. Each employer will have a different set of return to work values – not all employers have light duty programs.

As any experienced Workers Comp adjuster will attest, the numbers of years of experience adjusting in a certain territory, state, or with certain employers will result in the most accurate reserves. There is no substitute for experience in this area, no matter how great of a WC computer system is in place.

Adjusters have a great balancing act that is performed with reserves on a daily basis. If the reserves are too high, the employer could be overcharged for funds that were never actually used to pay benefits. If the reserves are too low, the carrier, and in turn the employer has to adjust for large unexpected reserve increases.

That is exactly why reserving is an art, not a science. Applying some multi-variable statistical function to a claim is never going to result in the claim having the proper reserves. The statistical generator may be good in the short term, but usually is not that accurate in the long term.

An experienced WC adjuster should be able to override any reserve that is within their authority levels. Let the artist paint on their canvas. If there is a stat package that is calculating the reserve, then an adjuster should be able to make the reserves fit the file.

Why did I write this article? We just received in a loss run from a statistical generator-type reserving system. The reserves are not even in the ballpark.

If you answered Yes to all three, then your company should be able to have your current and last three years policies audited for overcharges. Even though you may have insuring agreements with your carrier, if you pay premiums and the carrier audits your polices, your company should be able to have your large deductible program examined by your own independent auditor.

The mechanics of the policies whether a regular first dollar insurance company or a large deductible are basically the same. The one main area that changes is there is an agreed amount to handle the claims that may be different from the carrier’s usual way of charging premiums.

One very large misunderstanding that we have heard from a few of our large deductible clients is that the insurance carrier will not report the claims to NCCI or state rating bureau. Almost all large deductible policies I have ever seen are reported to the rating agencies.

Up next is the answer to the question “Did the CMS’s enforcement of the Workers Comp Medicare Set Asides cause claims to stay open much longer than in the past?”

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Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

The Premium Audit Bill Arrives Without Explanation

We receive this premium audit bill question quite often. I wanted to reiterate what how an employer should handle the situation.

The question is – Our company received a workers compensation premium audit billing from our insurance carrier. We did not receive any audit results, just a bill. How do we handle this situation?

The premium auditor will sometimes leave his/her results with you at the time of the audit. This is rarer now than in the past. Usually, you will receive the results of the audit approximately 14 – 30 days after the premium auditor visits your business.

The premium audit billing will usually arrive 30 – 60 days after the auditor has performed the audit. The bill will usually ask for payment within 10 days. The audit billing may have a copy of the audit attached to the bill as your first notice of the premium audit results.

If you only receive a bill without having seen any of the results, I recommend writing the insurance carrier (certified return receipt) and ask for a copy of the audit results. The carrier will usually provide an address for questions. You should receive the audit results back from your request letter within two weeks. Written documentation is very important.

I do not recommend calling your insurance carrier. You are legally entitled to the audit results – including any auditor workpapers. You are not actually disputing the audit by asking for the supporting documents. If you decide to dispute the audit, that is another matter.

Each workers comp insurance carrier has their own audit process schedule. The audit process is somewhat dictated by state law and the NCCI or State Rating Bureau. One of the easiest places to find the audit rules is actually in your policy. There are very specific time lines the carrier must follow in the premium audit process.

Assigned Risk Adjustment Program – Term Of The Day

The assigned risk adjustment program is an additional debit charge placed on Assigned Risk policies with experience modification factors higher than 1.00.. It is applicable to the NCCI jurisdiction states.

The notable exception is Massachusetts, where ARAP stands for All Risk Adjustment Factor. This is a surcharge that increases premiums over and above the experience modifier, and in MA the ARAP can be levied against all employers, not just those in the Assigned Risk Plan.

If you are in an Assigned Risk Plan, it is advisable to examine your policy to see how much the debit was that you incurred from the ARAP.

That figure alone has made many employers pump more funds into their safety programs. One clarification that needs to be made here is that being in an assigned risk pool may not originate from being a high risk employer.

Certain markets such as truckers and temp to perm employment agencies do not have carriers willing to write their WC coverage in the voluntary market. As I have said very often, get out your policy and read it over even if it is in the assigned risk pool.

Expected Losses – What and Where?

The Expected Losses for a firm is the amount of loss an average firm reporting the same exposures in the same classifications would have had during the Experience Period (usually three policy years).

Each rating year the NCCI or respective rating bureau calculates the Expected Loss Rates for each classification and each of the three years in the Experience Period. These rates are based on the reported exposures and claim costs for injuries occurring during the Experience Period within each classification for all companies in their respective state.

The Expected Losses are split into two types of losses. In most states, NCCI splits the Expected Loss as

Expected Primary Loss – Up To 15,000 of Total Incurred (Paid + Reserved)

Expected Excess Loss – Over 15,000 of Total Incurred

An insured’s Expected Losses are calculated for each classification and each year in the Experience Period by multiplying the Expected Loss Rate by the insured’s reported exposures by year and classification. The sum of these amounts is the insured’s Expected Loss.

The very basis formula for an E-Mod is Actual Losses / Expected Losses

Temporary Total Disability Period Claims

In a recent workers compensation study by NCCI , the total disability period for injured workers indicated the Temporary Total Disability (TTD) period had increased sharply over the last three years.

I decided to check a few numbers their study produced to see if there were any underlying statistics that could have added to the increase. There was one statistic that I thought would require a further look.

The number of TTD days increased from 129 to 141 from 2006 until 2009. The unemployment rate increased over the same period from 4.6% to 8.7%. The TTD days increased 19% while the unemployment rate increased over 100%.

I cannot draw a direct correlation between the unemployment numbers and the TTD period both increasing. I would say there was some effect on TTD days by the unemployment numbers.

If there is no position in a company for an injured worker returning to work, the expected TTD period would be lengthened. With an enormous increase in unemployment, this would tend to remove positions from the employer while the injured employee was on TTD benefits.

One of the Five Keys To Saving On Workers Comp that I have written and spoken about very often is a return to work program. I do realize that in today’s economy employers of all types and sizes are finding it difficult to return an injured employee to work.

The staggering statistic by not returning an employee to work is a 400%+ claims costs increase. As the old saying goes, the longer a claim is open, the payouts become exponentially larger. An adjuster will heavily increase the reserves on a file where an employer refused a return to work. The risk of future payouts is extreme when this happens.

I had performed three large studies on Workers Comp files over the last fifteen years. The 400% came from those studies.

Term Of The Day – Quantitative Claim Auditing

A quantitative claim auditing term of the day. The quantitative claim differs from Qualitative auditing. This is one of the parts of a premium audit that can reveal surprising inaccuracies. Comparing the loss runs to what the NCCI or State Rating Bureau has on file can reveal inaccuracies in the Experience Modification Factor calculations. This is also part of a claims review that only deals with the numbers, not how well the claims were handled.

Subrogation Funds Gone If Not Pursued Timely

Subrogation funds may not be pursued timely. I posted on this subject last week. I received a few emailed questions. I thought that I would address them today.

Why as a self-insured or first dollar insured employer be so concerned with subrogation? Is that not the job of the Workers Comp adjuster? Workers Comp adjusters are very overloaded, especially with the cutbacks in claims staff over the last few months. Adding to that is the fact that most insurance carriers do not train their Workers Compensation adjusters in liability adjusting. Subro is basically liability adjusting. In our file reviews, we often see a subrogation letter was sent to the liability carrier of the responsible party. The follow up is often lacking. The negotiations over what is owed can be foreign territory for Workers Compensation adjusters.

How do I track any subrogation on the claims? You will need to use a diary. Check out this article.

Our company is self insured for Workers Compensation. Why should I worry about subrogation? Your Workers Comp is being spent directly from your company budget. Subrogation is money that is in other companies’ bank accounts that should be in your company’s operating budget. It should be looked at as an uncollected receivable and given that status in your accounting procedures.

Will the responsible party pay us subrogation funds directly? They will pay your Third Party Administrator if you are self insured. The monies should be funded back through the claim to your Workers Compensation account. The insurance carrier – if you have first dollar insurance – will refund the monies to your Workers Comp file. The correction should be immediately reported to the State Rating Bureau or NCCI. The recovered funds will likely lower your company’s E-Mod. Depending on the situation, you may be owed a refund from the carrier.

Do we need to hire an attorney? No, the carrier or TPA will usually be able to negotiate with the insurance carrier of the third party. If needed, they have their attorneys that they will consult with on the claims. We never discourage anyone asking for legal advice.

What is my first step in monitoring my company’s subrogation on Workers Compensation? You will need to do a loss run and first report of injury review.

This seems like adding a ton of responsibilities to my job duties. If you are responsible for your company’s insurance budget, then it is found money and should be a critical area. There are quite a few articles in this blog that you can use by using the search box and typing in subrogation.

How do I know which accidents have potential to be subrogated? Subrogation takes years of training to be able to analyze the claims to see if there are hidden possible subrogation claims. It took me a few years to understand the complexities.

As always, you can email me at [email protected] or call me at 800-813-1386 Ext 701 if you have any questions.

Where Did The Money Go – Subrogation Bleeds Work Comp Funds

Where did the money go with your subrogation? I have posted on this subject often such as this article. Workers Comp subrogation seems to be one of those subjects that is passed over often. Self insureds need to be vigilant in this area as this is $$$ that can be directly assessed back to a file or files. There are two areas of even greater concern for Workers Comp policyholders.

They are:

Were the funds recovered actually credited back to the individual file?

Once credited, was the file correction reported to the Rating Bureaus (State Rating Bureau or NCCI) timely?

We have seen in our premium audits for employers or file reviews that there sometimes may not be a solid mechanism to have the funds credited back to the individual file timely. All Workers Comp insurance carriers do have your company’s best interest at heart when crediting the Workers Comp file with subrogation funds recovered. We sometimes find the funds credited back to the employer in general, not to the individual file. It is critical that the subrogation funds are credited to the individual file.

The file reserves must be reported back to the Rating Bureau immediately, not at the next Unit Stat date. See this article for the Unit Stat Date explanation. Why is this so important? Workers Comp E-Mods and X-Mods are calculated after your policy inception date for the next policy period. In other words, everything is on a time clock. Sometimes even a few days of not reporting the subrogation recovery to the rating bureaus can cost your company dearly.

If your company wishes, you may want to contact the Rating Bureau a few days after your carrier recovers the funds to make sure the corrected amount was reported. This seems to be where the breakdown occurs in getting the recovered funds back into your E-Mod. Each state has their own rules on reporting any changes to a Workers Comp file that has already been reported to the Rating Bureau.

I will post more on this subject next time. Remember – subrogation never really existed unless the Rating Bureau knows about it.

Safety Program Lowers E-Mods By Eliminating Accidents

A safety program will always be the quickest way to lower E-Mods. Recently, the subject of E-Mod/X-Mods surfaced in a few publications and on some of the social networks that I participate on Workers Comp. There were many discussions and posts on what would be the fastest way to lower an E-Mod.

There are many publications on how to understand E-Mods. The best one that I have read is the free videos that are on NCCI’s website under their education page. NCCI also has material that you can print that covers some of the areas of how E-Mods are calculated. The videos are not that long and are worth it if you are responsible for safety and risk management at your employer.

We have built up a large clientele from analyzing and projecting E-Mods for employers. There are a few techniques that can be attempted to lower on the E-Mod on the back-end such as checking for mistakes in the way the insurance company reported the claims data to NCCI or the State Rating Bureau . However, there is a more rapid E-Mod reduction technique.

The quickest way to reduce the E-Mod is most definitely involves safety programs. Keeping your employees out of the claims system will drop E-Mods like a rock if done properly. Patience with your safety program diminished too quickly in many situation. Reducing your risk factors takes time.

The very basic E-Mod or X-Mod equation is adjusted actual losses / adjusted expected losses. The expected losses are derived from your company’s payroll size and classification codes. The idea is to keep the top number in the equation (numerator) as small as possible.

This post is getting a little long. I will pick the subject up again in my next post.

D-Ratio Is Associated With Each Class Code

D-Ratio is also known as the discount ratio. NCCI or your State Rating Bureau uses the discount ratio to determine the portion of the losses that are expected to be primary losses ($15,000 or less).

A D-Ratio can vary by the rating state and the Workers Comp classification code.

The chart shows an example It is the ratio of the primary expected losses plus a discounted value of large losses divided by the total expected losses.

It will appear as a two decimal figure on an employer’s Experience Modification Rating Sheets. The ratio results from a series of actuarial calculations by NCCI or the State Rating Bureaus.

The ratio is located in the third column on all rating bureau sheets after the Classification Code and Expected Loss Ratio (ELR). For every Classification code in each state for each year in the Experience Period, there is an associated D-Ratio.

I was examining a group of E-Mod Rating sheets today for a Personnel Agency. Their D-Ratios varied from .26 to .51. Most of them were in the .40 to .45 range.

Workers Comp Self Insurance Concerns

Earlier this week I posted on what companies should consider before pursuing self insurance as a means to reduce Workers Comp costs. We had a large enough response to the article that I thought I would add five more concerns.

Your Experience Modification Factor (E-Mod) will not be a 1.0 if you ever leave self insurance. NCCI and all of the other state rating bureaus all have added in rules if your company tries to jump in and out of self insurance as a way to keep your E-Mod low. This simply will not work any longer.

Self Insurance and a large deductible program are two totally different insurance programs. One of the most glaring differences is that with a large deductible program your E-Mod is still reported to NCCI and/or the applicable rating bureaus.

Will your company use your TPA’s services such as bill review, medical and vocational case management, pharmacy, or providers’ network? The TPA’s services may make self insurance not as economical as one might think. I have to be careful here as I received a letter recently threatening a lawsuit for revealing how much a TPA was charging extra for their services.

Have you explored PEO’s, self insurance pools, carve out programs or other types of Workers Comp insurance?

Have you thoroughly examined your company’s internal processes in handling Workers Comp claims? We have seen where an employer or governmental entity will become self insured to get away from or change their problem areas with the insurance carrier. Actually, the problems may still be there internally and be even more costly under self insurance.

Bonus – Is the management of your company going to buy into the self insurance processes? If not, a change to self insurance may not be the best approach.

There are many other concerns I could post on overall. These six and the prior five are the ones that we see most often when we assist large companies with self insurance statistical analyses

Scopes Manual Definition

The Scopes Manual is a guide to proper classification of employees published by NCCI. This manual details each employee classification code with a definition and a list of employees who fall under that specific code. The Scopes Manual includes NOC definitions as well as classification codes that are state specific.

Term Of The Day – Basic Manual

Basic Manual is compiled by NCCI, then approved by state insurance regulators. This manual includes the guidelines for premium calculation. To Those insurers who are providing coverage to an NCCI member state, these rules and guidelines are binding.

Alaska Body Slams Non-Generic Drugs

The State of Alaska body puts an end to the very expensive brand name drugs . My hat is off to Alaska’s Workers Compensation system. A bill was recently pass that REQUIRES generic drugs in all Workers Compensation cases. This very smart political move will save the employers in AK millions every year.

According to the NCCI (National Council on Compensation Insurance), Alaska saw a sharp increase in how much of Workers Comp claims were due to medical costs. In 1988, medical costs were 48% of claims. That figure has increased to 58% by 2008. Of course, who bears the brunt of these increases – the employers paying in Workers Compensation premiums.

One of the interesting parts of the rule is the employee can still have the name brand drug. The insurance carrier or TPA will have to reimburse the employee or pharmacy for the generic version. The employee will be required to make up the difference.

There has been a debate on whether generic drugs actually are as effective as brand name medications. The following is from Ask The Pharmacist at drugstore.com.

When scientists develop a new drug, they give it a generic name reflecting its chemical makeup. Once the Food and Drug Administration (FDA) approves the drug, the manufacturer markets it with a brand or trade name, which is usually shorter and easier to remember. A drug company can hold exclusive patent rights to make a drug for 20 years after its discovery. After that, other companies can start making generic versions of the drug.

Are generic drugs safe?
In almost all cases, generics work as well as their brand-name siblings, and often cost considerably less. This is possible not because of lower quality, but because research and advertising costs are much less for generics. Many insurance plans encourage you to accept the generic version of a drug whenever it’s medically safe. Most states let pharmacists substitute a generic when appropriate and when your doctor approves it. Our pharmacy is located in New Jersey, so we only substitute generic drugs approved under New Jersey law.

When shouldn’t generics be substituted for brand-name drugs?
Very few drugs have a “narrow therapeutic index,” meaning that a small variation in dose can cause problems, such as too little effectiveness or too many side effects. With some drugs, including phenytoin (brand name Dilantin), carbamazepine (Tegretol), valproic acid (Depakene), divalproex sodium (Depakote), digoxin (Lanoxin), warfarin (Coumadin), lithium (Lithobid, Eskalith), levothyroxine (Synthroid, Levoxyl), and theophylline (Theo-Dur), you shouldn’t switch from brand to generic—or vice versa—without your doctor’s approval and close supervision. Always talk to your doctor, pharmacist, or both before asking for a substitute.

Term Of The Day – Interstate Rating

Interstate Rating are experience modification factors that apply across more than one state. They are administered and calculated by the NCCI for employers who have shown payroll for more than one state in the past.

Nearly every state in the country participates in the interstate rating system. There are exceptions to every rule because there are still some states who have chosen not to participate. These states are Pennsylvania, California, New Jersey, Michigan and Delaware.

These states have their own independent rating bureaus and do not want to co-mingle their rating factors with other states. These independent states may have such differing rating factors that NCCI could not use their calculations.

The classic employer types that have interstate ratings are:

Companies with multi-state operations

Trucking companies with multiple terminals

Larger national companies

Modification factors for payroll for these 5 states are calculated by the state’s own rating bureau. Employers who have exposure in participating states and these non participating states could possibly have 6 separate and different experience modification factors. The experience modification factor would only apply to the exposure in each stand alone state.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

West Virginia Workers Comp Was Subsidized

Was West Virginia Workers Comp Carrier Brickstreet subsidized by taxpayers? I was reading a Opinion Letter in the Charleston Daily Mail about Workers Comp being subsidized for governmental entities in WV. I had to disagree with the letter as the author inferred that WV governmental entities were being subsidized as Brickstreet had been writing them at a loss since 2006.

Insurance carriers will quite often write a section of a market and not just cherry-pick the safest employers with the classification codes in that marketplace. Brickstreet’s whole book of business allowed for a large profit as they were able to pay their very low interest loan back to the state government much earlier than anticipated.

Do the safer governmental entities or businesses ever actually subsidize the less safe ones? I would say no as that is the function of the Experience Modification System. The E-Mod system penalizes the unsafe insureds. The E-Mod system allows a discount of sorts to the safer insureds. One of the benefits of WV switching from their State Fund system to the NCCI system was a more accurate E-Mod system.

Brickstreet had said in a press release that the rates for some of the governmental entities were being artificially suppressed causing a loss of $25 million for writing governmental entities. However, as we have seen very often in the marketplace, carries such as AIG and Travelers are writing the same business that Brickstreet wrote in the past priced at Brickstreet’s previous policy year without increases.

It will be interesting to see what policies have been written by which carriers and at what price for governmental entities. I think that you will see incredibly low pricing by the big carriers where there will be no subsidizing in the general marketplace.

Term Of The Day – D Ratio

A D Ratio is a variable used in a workers compensation experience rating plan. It is applied to the expected losses to determine what percentage of those expected losses are to be considered as primary losses within the rating formula.

Once discovered, the D-Ratio is the ratio of primary expected losses to the total expected losses for any certain classification code. It is then used on a workers compensation experience modification factor (emod) worksheet.

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The D-Ratio is important because the experience rating formula splits injury cost between a primary amount and the remainder. Because primary losses are given more weight in determining the experience rating modification than are excess losses, the D-Ratio is an important factor to determine.

One can think of the Excess Losses as the discounted losses.

D-Ratios are produced by a rating bureau and published in that bureau’s experience rating plan manual. Each D-Ratio varies by state and classification code.

The ratio cannot necessarily be disputed as they are attached to the associated Classification Code. The ratio is calculated from a set of actuarial formulas used by each state rating bureau, WCIRB, or NCCI.

UNIT STAT Date – Very Important Planning

I had mentioned the UNIT STAT date and report in May 2008. It is worth mentioning again as it is one of the most important reports in all of Workers Comp insurance. The name was shortened from Unit Statistical Date.

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The UNIT STAT date is the actual date that the reserves/total incurred is used to calculate your E-Mods. It is not the policy renewal date. We have seen agents, adjusters, and even some underwriters become so very concerned about an employer’s Workers Comp policy during the last month of the policy.

Other than marketing for the insurance company, the last month of a Workers Comp policy is a useless time to do anything in regards to reducing the reserves on a file.

The report is filed by your insurance carrier with the State Rating Bureau or NCCI to calculate your Experience Mod. The UNIT STAT report is one of those kind of “hidden” factors that figures into your Workers Comp policy.

Do not wait until your Workers Comp policy expires to start working on your workers comp reserves. Start three to four months before your UNIT STAT date.

Top 30 Insurance Policy Mistakes

These are the list of insurance policy mistakes from rating bureau.I have often heard this phrase from employers “As far as we know, our insurance carriers are reporting everything to NCCI or our State Rating Bureau accurately.” I decided to check and see if insurance carriers are highly accurate in their reporting.

I found a list of the Top 30 Mistakes That Carriers Make When Reporting Information I will list the Top 10 –

6. Policy total estimated standard premium cannot be less than policy minimum premium.

7. Transaction issue date :[–/–/–] must be within range of transmittal letter.

8. Duplicate header records not allowed.

9. Endorsement __________ is not attached

10. Reason code must be zero.

While most of these would not necessarily effect the premiums that you might have to pay, #5, #6, #7 and #9 seem to be premium drivers for your Workers Comp policy. We are not saying that insurance companies make mistakes all the time. It is just when they do, it could cost you $$$.

That is why I recommend always checking everything on your Workers Comp policy whether you have an agent or not. Assuming everything is copacetic may be costing your company premiums.

Workers Comp Class Codes 8810 and 8742 Revisited

The Workers Comp Class Codes 8810 and 8742 always generate a large amount of attention. I receive a large number of comments and questions every time that I post on the NCCI and State Rating Bureau Workers Compensation Codes 8810 and 8742. As we all know, the two codes usually represent the lowest rates for Workers Comp Class Codes 8810 and 8742 are also known as Standard Exception codes. The definition of Standard Exceptions can be found by clicking the Definitions Tab on the right side of the screen.

There are a number of rules on Standard Exception codes – especially 8810 Clerical. One of the most common mistakes by employers is the employee or group of employees perform the duties allowed under the code – but not 100% of the time. As I have posted very often, if an employee spends one minute performing a higher risk task, then the employee will not be rated under the Classification Code 8810.

The insurance carriers at premium audit are very picky about this Class Code. There are some exceptions to the 100% requirement, but not many. It is very rare that the NCCI or State Rating Bureau will allow the premium to be allocated on a pro-rata basis on how many hours the employee or employees worked in each job.

Next up – Class Code 8742 – the most misunderstood classification code.

Workers Comp Claims Data and Payroll

Workers Comp claims data and payroll must be important. I have received many inquiries about what changes are upcoming on 10/1/09 for E-Mod/X-Mod calculations. There are changes coming and they are not minor. Believe me, they cannot be ignored unless your company has limitless funds. Your Experience Modification Sheets whether promulgated by the NCCI, WCIRB, or a State Rating Bureau are going to be even more confusing than they are now. I have examined sample ones and my head started to spin.

Accurate claims data including reserves used to be just as important as payroll, but not as important as Workers Compensation Classification Codes. The claims data including reserves may now be the most important thing to your bottom line and could exceed Class Codes as being the most important set of data for your Workers Comp premiums. The fact is that no one knows how it will affect any company’s premiums as the new rules are not yet in place. If this does not scare you, then just open up the checkbook and use your best pen to write a big check.

Believe me, I am not saying that the new rules will discriminate against any one company or group of companies. That is just not true. Companies with inaccurate claims data and reserving are now going to feel the financial effects very rapidly. Your Workers Comp loss runs are now golden to you. If your company ignores them, please see the last sentence in the previous paragraph.

The new E-Mod/X-Mod calculations are going to make the unsafe companies take on more of a burden and pay a larger share. There used to be two variables that mattered – the number of claims and their severity. Now there are going to be more than 10 data inputs that are going make your E-Mod/X-Mod more specific to your company.

I wish that I could go more into the analysis. No one has seen a live version applied to a real company yet. Simulations are not real world examples.

Standard Exception Codes Revisited

The main Standard Exception codes denote 8810 and 8742. We have received so many questions on these two class codes that I thought that I would post about them again. These NCCI (R) Class Codes are also used by the various state rating bureaus in the US. Why are they so popular?

These two Class Codes are called Standard Exceptions. What does that mean? In almost all cases a business is given a governing class code. Let’s say that we have a trucking company that does only long haul trucking. Their class code is 7229 (different in certain states). Should the office workers and salespeople be classified as long haul truckers? They should not.

Quite some time ago, the rating bureaus all figured out that if an employer is paying the same Workers’ Comp insurance premiums for a truck driver as a salesperson or office worker, they were being overcharged for employees that were smaller risks. The Standard Exception Codes can apply to almost any company. As they are much smaller risk categories, the rates are much lower than most other positions.

Their is a caveat to Standard Exceptions. If an office worker (Class Code 8810) works for one hour a week as a mechanic or working around the trucks, this employee will be classified as a long haul trucker in this example. Their complete pay (remuneration) will be classified as a long haul trucker.Workers Comp premium auditors have become very adept at separating out the Standard Exception workers from the rest of the company.

There are pages and pages of Class Code information for 8810 and 8742. Office workers and salespeople are not the only workers that can be classified under these two codes. If you use the search box on the right side of the page and search for Class Code 8810 or 8742, you will find some of the other types of workers that can fall under these codes.

Long Term Outlook

The National Council on Compensation Insurance (NCCI) had an optimistic outlook on the Workers Compensation market. However, the NCCI had recently adjusted its long term outlook for workers’ comp to cautionary. This may be the warning of a hard market.

These concerns, according to NCCI, include:

· Rising medical costs remain a significant challenge and continue to rise faster than wages. California is the best example of spiraling medical costs. The NCCI does not track CA statistics.

· Higher indemnity claim costs. Researchers found that indemnity claim costs also continue to outpace wage increases The number of claims have decreased. The higher indemnity and medical costs have offset the decrease in the number of claims.

· Lower investment yields. I am of the opinion that the insurance markets follow the stock market. The recent downturn in the economy should have hardened the market. The bailouts in the financial markets may have delayed the hard market.

· Potential political changes. I think the political changes such as a Federal Insurance office has caused great uncertainties in the market. Workers Comp benefits could be even be affected by the nationalized health insurance program. With all of these uncertainties, the market could harden very quickly.

What Is the effect of a hard market in Workers Compensation? I will post on that next time.

Workers Compensation Reserves – A Tough Review

Understanding how your claims affect your insurance premiums.

The adjusters actually have an additional six months after a policy ends to adjust the reserves to their proper level . Reviewing your claim reserves with the insurance company at the end of a policy year is an exercise in futility. Approximately 90 days after your policy expires is the best time to review the loss runs and the reserve values. These Total Incurred values will show up in your company’s Workers Comp insurance policy for the next year.

Examining and understanding what the three factors of workers compensation reserves are and which ones can be analyzed.

The three factors are the Spent amounts; Amounts in Reserve, and Total Incurred. The Spent amounts can be examined to make sure that the correct amounts were paid. The Spent amounts have little to do with the reserve figures. The Spent amount analysis is best performed in a claim review, not a reserve review.

The Reserved amounts are the most important part of a reserve review. They are the unspent figures that the adjuster estimates will be paid out over the life of the Workers Comp claim. The Reserve amounts are the negotiable parts of the loss runs. Over-reserving can cost an employer dearly as the E-Mods/X-Mods are calculated directly from these figures. Over-reserving will cause an employer to pay premiums for funds that will never be used to pay the claim.

The Total Incurred amounts are the Spent amounts added to the Reserve amounts. The Total Incurred amounts will appear on the Experience Modification Worksheets that are published on your company by the NCCI or State Rating Bureau.

Claims Review – analyzing how well the claims department handled the claims. This is usually accomplished with a review sheet that scores the effectiveness of the claims adjusters.

Reserve Review – a financial analysis to make sure the monies forecasted for the life of the claim is as accurate as possible. Negotiating down the reserves will result in a large amount of savings in your Workers Comp premiums.

Premium Audit – performed by the insurance company’s premium auditor to make sure that all the correct classification codes and payroll figures were used during the policy period that just expired.

I have provided the background of what you need to know to do a reserve review. The rest of the Workers Compensation Reserves Review will be covered in the next post.

Loss Run Claim Reserve Analysis

A loss run claim reserve analysis is one of the most important steps in reducing your workers compensation budget. This post is a continuation of the last post. I will break down the list of six loss run claim reserve analysis steps into two groups of three.

Obtaining online access or Workers Compensation loss runs.

This area has been covered very often by me in previous posts. Please use the Search box in the right margin. Searching for online access or loss runs will give you the best results.

Any very old claims (more than 5 years old) will not affect your E-Mod or X-Mod in most cases. However, if you are in a hybrid insurance arrangement or a long-tail Retro policy, the old claims can still affect your insurance premiums.

Your company’s most recent claims will likely not affect your next E-Mod/X-Mod. However, the very new claims will affect your Mod eventually, so they should be examined along with the rest of the claims on the loss run.

Understanding which claims will be examined when an insurance company provides a quote

This may be a little confusing as the insurance companies that do a good job of underwriting will examine the older claims that will not affect your E-Mod. The underwriter will still look at the old claims to make sure that your company did not have a very bad claims year that may not appear in the E-Mod calculations.

We recently consulted with a trucking company that was trying to negotiate a switch from a regular commercial policy to a large deductible program. Their E-Mod looked great. The insurance carriers that were willing to write them did not provide a great deal as was anticipated due to their low E-Mod. The underwriting departments were concerned the company had two very serious claim years 7 & 8 years ago. The bottom line is that for the E-Mod the newest claims should be examined. If your company is going to shop their Workers Comp insurance in the market or going to try to switch to an alternative insurance plan, all claims on the loss runs are then highly important.

That covers the three out of the list of six loss run claim reserve analysis steps. We will cover 4, 5 & 6 in the next post. There is a Definitions tab in the right margin that will take you to a list of definitions if you have questions on any of the terms. Please email us if you have any questions.

Workers Compensation Reserves – Correct?

Are the Workers Compensation reserves correct on the file you are examining? I have posted on this subject previously. As it is a very popular question that we receive, I will cover the subject again. The steps to finding out are:

I will cover these in groups of three over the next two posts. I recommend bookmarking this post as a guide to read the next few posts. Quite a few of these topics have been covered in prior posts. Feel free to use the Search box to find my prior posts on this topic. The search box appears at the top right on any of the articles or archives and most of the website pages.

The steps for self-insureds/large deductibles are different. We will cover those in later posts.

Total Incurred Value

This is one of the more confusing areas of Workers Compensation. The terms are different on almost every insurance carrier’s loss runs. The term Total Incurred is the sum of the funds Spent added to the Reserves. In other words: Total Incurred = Spent + Reserves. The easiest way to locate the Total Incurred is to find the largest of the reserving amounts on each claim. The Total Incurred will always be the largest number.

The reason that the Total Incurred figure is so important is that is the amount used by insurance carriers to report your insurance loss history to NCCI or your State Rating Bureau. The amount Spent is not what is used to calculate your E-Mod. It is the Total Incurred value.</>

For instance, if you have a Workers Comp claim that has only $300 spent but there are $13,000 in reserves, then the claim is valued at $13,300 not $300. We just received a call today from a company in California that had this very question. The Workers Comp file was left open for three years and they paid premiums off the $13,300 not the $300. A few claims such as this can wreck a Workers Comp program.

This is a very important point when you look over your company’s Workers Comp loss runs. It is a great idea to make sure the claims adjuster has provided you with an updated status on the Work Comp claim. Workers Comp adjusters are very overloaded with claims, especially with the downsizing occurring due to the recession. They may not have time to look at reducing reserves. That is the lowest priority in an adjuster’s busy day. The adjuster has about thirteen main tasks and reducing reserves is #13. It is not the individual adjuster’s fault. It is the way Workers Comp claims systems have been operating for many years.

If you feel that your files are over-reserved, it may be time to call in a claims professional or a Workers Comp consultant to keep your Workers Compensation premiums in check. We always recommend not calling an adjuster and saying that all your Workers Comp reserves are too high. Emailing an adjuster with specific questions is the best way to follow your claims.

Standard Exception Codes 8810

I posted on the most used Standard Exception Codes (8810) earlier this week, I thought it would be good to cover the subject again.I had posted on this subject back on October 16, 2008. That post is listed in the archived posts further down on the right side of this blog.

We will use NCCI Standard Exception Codes – classifications that are common to many businesses and that are generally not allowed to be designated as the governing classification. The governing classification is the class code that produces the most payroll in a business. The Standard Exception Codes are:

Please note that each of these codes has many subheadings. The Classification Code 8810 has pages and pages of explanation on the code. Is there an overall guide to what jobs fit all of these codes? The NCCI has the Scopes Manual which is supposed to be used by all insurance personnel that rate or audit companies’ Workers Comp payrolls and premiums.

One caveat to the Standard Exception Codes is that premium auditors are trained in and are very adept at analyzing the above Class Codes. We often see in our audits for employers where the auditor has changed the Class Codes from the Standard Exception Codes to other codes.

NCCI Class Code 8810

This is the most popular question that we receive about the NCCI Classification Code system. Class Code 8810 is the Administrative/Clerical code that is used in all 50 states, including the monopolistic states. It is usually the least expensive code as employees that fall under the Class Code are considered very low risks for a Workers Compensation accident.

The 8810 Class code is what is referred to as a Standard Exception. I will cover Standard Exceptions in the next post. NCCI class code 8810 is an all encompassing code. There are very many job titles that would fall under this code. Class code 8810 is not just for administrative assistants. The rating manuals have very long descriptions of this popular class code.

As I write this article, the 8810 listing in the NCCI clocks in at just under 10 pages.

We have performed quite a few workers comp audits for employers where a large number of workers were included under the 8810 code that more than likely could have been classified under another code. The insurance companies’ Workers Comp Premium Auditors have become very adept at reclassifying employees out of the 8810 Class Code into other more expensive class codes.

Workers Comp Audit – Premium Auditors

The premium auditors emailed me a few times on their disbelief of my last article. My last post discussed two employers being audited for a total of 23 years by their Workers Comp carrier. I am not faulting any certain auditor, but more of the insurance environment that is in place now. I have seen two or three auditors that should not be doing premium audits. I have also seen a few workers compensation adjusters that should not have been handling claims. For the most part, auditors and adjusters are very hard working people.

My main point is that there are audit rules that must be followed to the letter by employers. The NCCI and each state have come up with very specific workers comp audit rules. Insurance companies should have to follow the same work comp audit rules. Going back 15 years and try to perform audits and collect in California is just not legal. California has a very short look-back period on audits.

I will post tomorrow on Professional Employment Organization (PEO’s). With the economy in a downturn, the prevalence of PEO’s are increasing dramatically as they have in bad economies in the past.

Loss Runs – Important Part Of Claim and Premium Audits

We receive this question often when we are obtaining the materials that we need to do the Workers Comp premium audits/reviews for employers. We also like to go more in-depth than the insurance company’s auditor. The reason that most premium audit companies ask for loss runs is to make sure that the loss runs provided by your carrier resulted in the exact same numbers on your E-Mod/X-Mod sheets.

In the past, there were errors made when the insurance carriers and rating bureaus transferred the claims loss numbers from the insurance company loss runs to the rating bureau Experience Modification sheets. The Unit Stat Report is what the insurance carriers report to NCCI or the State Rating Bureaus. This type of error is not as prevalent as in the past. However, it does happen. The largest recent one was the NCCI rating sheets for New Hampshire employers five to seven years ago.

One of our services is to also review the claims loss runs to formulate a plan on how to reduce your claim reserves. It is very difficult for us to go back in time and try to negotiate down a Workers Compensation reserve figure. The reserving exists in the present only. If any company tells you that they can negotiate down PAST reserve figures, that should raise a few questions as no insurance carrier will allow a reduction in past reserves.

The best way to keep track of the reserving by the claims department is by having online access. As I have said before, the claims loss run is no different than any other type of financial statement and should be treated exactly the same as a bank statement. Please see the recent post on online access.

This is a case, once again, whether the government has launched an artificial modification to the E-Mod system that is in place in one form or another in every state. I am not sure that this will work as it would seem that the most safe employers would be subsidizing the least safe ones. The E-Mod system for Workers Comp is the system that has worked for many years. The NCCI has modified some of the rules, but not the way the E-Mod system works.

Someone will have to pay for the cap and it will be the safer employers. This may even cause a somewhat safe employer to be more lax in their safety. If my company was going to receive a cap and I could cut the safety budget, then would I not try to figure out how to have a minimally safe company? That may be an extreme example. Workers Compensation’s rating, audit, and premium system works well for the environment that it exists in for the most part. Why alter what actually works?

I had read where some employers’ premiums had swung wildly, but the way the E-Mod system is built, that one bad accident or one bad year is spread over three years. I think where the main fault lies with the Ohio BWC is the way that the Classification Codes are set each year. I would not say that is the reason for sure, as I would have to look at the rates for each classification codes for years to see what the changes were overall.

The bottom line is that while the Experience Mod system is not perfect, it should not be altered as one group of employers will end up subsidizing another if the system is changed.

WC and The Stimulus Package

The Stimulus Package may affect Workers Comp in three ways . The three other bullets I wanted to cover from a few posts ago are:

Having a Federal Insurance Watchdog Agency – in essence to federalize the insurance markets along with Workers Compensation

The shrinking employer market as the need for Workers Comp coverage will be reduced in proportion to the employers’ reduction in size

The increase in claims filed as employees lose their jobs – this has been shown to be statistically true.

I do not think that federalizing the insurance administration and especially Workers Compensation would be a positive development. As we have seen (Digital TV Conversion, Bank Bailouts, etc.) when anything in federalized the costs increase dramatically and the level of service diminishes.

Would it not be a nightmarish situation if your agent not only had to keep up with state regulation, but also federal. For instance, if you were renewing your Workers Comp policy, your agent would possibly have an extra set of federal forms to fill out. Of course, there would be a tax on the premiums to keep a watchdog agency in place. You, as the employer would pay that extra tax. State regulation is still the way to go because Workers Comp and other lines of insurance vary so much between states.

The shrinking employer market is a fact. When more employees are taken off the payroll, then the amount of risk with that employer would decrease. However, there is another side to this discussion. The larger the payroll, the more an employer can spread the risk of a few bad claims. There are ratios in your E-Mod calculation that try to act as a balancing act between payroll, class codes and claims. As with most costs, the smaller employer pays a higher per dollar premium for the same Workers Comp coverage. It is not that fair, but it is the system put in place by NCCI and the State Rating Boards.

For many years, there have been numerous studies that show when employers lay off a large number of their staff, the number of Workers Comp claims spikes. Is this due to the employees worrying about future benefits and want to make sure they will receive an income after unemployment runs out or is it that employees may have been working with injuries that were tolerated as a part of work and now they want to file a claim now that they are unemployed? I think it is a combination of both. As I said in the previous paragraph, if an employer has lower payroll with many claims being filed, the E-Mod will increase dramatically costing an employer more for their Workers Comp in the coming years.

Overall, I think the only very negative development coming out of the current stimulus package is the federal watchdog agency possibly being created to administer insurance.

E-Mod And X-Mod System

I have posted very often about how your company’s E-Mod /X-Mod can make or break your Workers Compensation insurance budget. One of the most popular questions we receive is “Our E-Mod is low and we have had no accidents. How can our premium have increased so much in such a short amount of time?”

One of the shortcomings of the present Experience Modification system is that in a bad year for your company’s overall industry, even a good safe employer can suffer greatly. If companies that share your Classification Codes had a bad year with Workers Compensation claims, then your company will share in their loss as the Class Codes your company possesses will become more expensive even if your company has had a good year with Workers Comp incidents.

For instance, if your company is a trucking company that has instituted many safety measures and lowered your E-Mod this does not mean a decrease in premiums. The Class Code for Long Haul Trucking is 7228. If most of the long haul trucking companies in a certain state had many accidents, the NCCI or State Rating Bureau will increase the 7228 loss cost or advisory code. If the increase in 7228 was very sharp, then you may see a large increase in your company’s premiums even though your E-Mod is reasonable.

E-Mods can individualize you company’s safety efforts, but only to a certain point. The E-Mod/X-Mod system is a good system, but it does have its faults. Many employers are looking to PEO’s, Self-Insurance, and Captives as alternatives to regular Workers Comp insurance policies. One of the main reasons is that the cost of your Workers Comp insurance program is not affected by outside influences as much with some of the alternative programs.

Captives are becoming very popular as they are the best way to have the premiums that employers pay being only based on the specific employer, not a group of similar employers. In other words, your safety efforts are rewarded more than some of the other programs.

Ohio Workers Comp Changing With Recent Court Decision

The Ohio Workers Comp lawsuit result indicated a bad result for the monopolistic carrier. I had posted on this situation November 22nd. If a judge can grasp why the state cannot artificially structure the Workers Comp premium rates for Ohio business, why is the GOP having such a hard time figuring out this simple point?

(c) 123rf.com

Surprisingly, GOP lawmakers said they want to preserve a system used by the state to set job-injury insurance rates. This would override a Cuyahoga County judge who recently ordered the Ohio BWC to structure their premium rates similar to NCCI. In my last post on the BWC, a group of businesses had successfully argued that the bureau’s group rating system made their premiums unfairly high. The steep discount received by the large business pools have to be made up somewhere and that is with increasing small business premiums.

Small businesses already take on more of a premium risk, as they cannot spread a loss over a large amount of payroll. Therefore, the system already discriminates against a business with a smaller amount of payroll. This is an acceptable premium slant towards large businesses. There is really no way to level the playing field in a NORMAL Workers Comp premium structure such as NCCI or most of the State Rating Boards. That is the nature of a normal Workers Comp system.

I do not understand why the Ohio Republican party would want to continue a system in which groups of businesses receive unfair, heavily-discounted rates. The large business premiums are subsidized by individual businesses. Republicans want to pass a bill in the final month of the legislative session while they still control both the House and Senate.

This gets back to what I have said many times before in this blog. Monopolistic state funds are being administered like a government agency, not as a Rating Bureau. There have been so many scandals with the Ohio BWC. I recommend that Ohio immediately change to having NCCI oversee their Workers Comp program. West Virginia and Nevada did it with great success.

Questions About Assigned Risk Pools

Last week, I posted a short note about the Assigned Risk Pools for Workers Compensation in West Virginia. I received quite a few questions about the Assigned Risk Pool from West Virginia and other states. It seems that quite a few additional employers are being placed into the Assigned Risk Pool that even have good E-Mods. I will try to answer some of the questions in this and the next few posts.

A good E-Mod is one that is less than or equal to 1.0. A good E-Mod can even go up to a 1.2 under certain circumstances.

The trucking industry had experienced that situation a few years ago. A trucking client of ours had an E-Mod of .89 and was placed into the Risk Pool. This was due to the market tightening/hardening on risk. They are now out of the Assigned Risk Pool even though their E-Mod had increased to a 1.19 due to a few severe accidents!

We were consulted by an asbestos removal company that tried to get out of the Assigned Risk Pool. There was no market to place them in, even though they had not had an accident or occupational illness in the last 10 years.

The quickest way to get out of the Assigned Risk Pool is to heavily shop the insurance market for your Workers Compensation coverage. If you are in West Virginia, you are free to choose a carrier besides Brickstreet, but if you are assigned to the Risk Pool, you must take whatever carrier you are placed with by the Insurance Commissioner and NCCI.

The best way to get out of and stay out of the Assigned Risk Pool is to increase the safety standards that you have in place for your company. If your E-Mod is above 1.1, you are headed to the Assigned Risk Pool. The key to a great E-Mod is not avoiding the one big accident–it is avoiding accident repetition. That is the way the Workers Compensation Experience Modification system has been built. Right or wrong, the system penalizes frequency much more than severity.

My next post will cover Five Keys to Reducing Your Workers Comp Claims, which in turn will quickly bring down your E-Mod.

These do not cover all states, but most of the non-NCCI states have almost the same codes. The key is the codes cover much more than just the above exact code descriptions. Most of the time, the Standard Exception Class Codes are much less expensive than the other class codes.

These codes are the ones that are most often disallowed by workers comp premium auditors. We see Code 8810 (or its equivalent) being changed the most during audits. Documenting the job duties of any employees with Standard Exception Codes is very important.

You may always dispute the premium audit results if the employee was a clerical worker but was moved into another classification.

Workers Comp Big Premium Increases By Accident

The inadvertent way that you can increase your Workers Compensation premium.

I have seen a situation happen very often in a recession that can cost an employer a large amount of workers comp premium dollars, especially at the yearly payroll audit. This is very prevalent in California now.

In a recession, most companies start to cross-train or lay off employees. This causes employees to do job tasks that they might not usually do in a normal economy. If your company is in this situation, please be very careful not to assign an employee to a job duty that would cause a great increase in premium.

For example, if an administrative or clerical worker is given a very small job to help clean tools, that employee’s workers comp classification code may change from a low risk job (clerical) to a higher risk job (mechanic) .

Even if the employee only cleans tools for one-half hour per week, the insurance carrier auditor will move the employee from the lower class code to the higher one, which can increase the premiums you pay for that employee up to 5,000%.We have seen this recently in quite a few of the audits in the down economy.

As I heard at an NCCI conference, if the employee performs the high risk job only for a few minutes a week, they should be classified in the higher class code without a doubt.

Bottom Line – make sure the workers compensation insurance carrier premium auditor knows exactly the job duties of all employees and back up your job classification with documented job duties. This may be time-consuming in the short-term. In the long-term, it will be well worth the documentation effort to avoid the inadvertent way to increase premiums.

Part IV – Experience Mod Calculation From A Small Claim

A small claim can end up costing your company dearly . From the last post, the Workers Comp adjuster closed the claim out after 4 years and spending out $1,000. The file was originally reserved at $10,000. The file was over-reserved by $9,000.

Using the Variable A (Excess Loss Factor) from the 09/30/08 post of .20 , let’s look at the real claim dollars with the loss.

Recalculated Primary Loss Over-reserved = $20,000

Recalculated Excess Loss Over-reserved = $5,000

What does all of this mean? With the way that the Experience Mod calculations are structured by the NCCI or State Rating Bureaus, small claims are costing your company much more than you may realize.

The Workers Comp Experience Rating systems are structured to make sure that one huge claim will not ruin your E-mod. The flip side is that a few small claims can and will wreck your E-Mod and your Workers Comp insurance program for years to come.

A claim that is under $5,000 is not a small claim. As you can see $4,000 of a Primary Loss is much more expensive than it looks.

The bottom line is to not just zero in on the big claims. All claims that are reserved as a Lost Time file should be tracked closely. Even medical only claims should be tracked to avoid festering.

A Small Workers Comp Claim Is Still Expensive

The term small workers comp claim is such a nefarious item. I have heard that term often over the past 27 years. The term should be a smaller part of the risk of a larger loss.

Please note this is an older post before NCCI changed the Primary Loss level. The concept is still the same. The Primary Loss part of a claim is now $15,000 in most cases. This makes the concept of small claims even more false than when this post was written in Sept 2008.

There are two ways that Workers Comp reserves have an effect on your Experience Mod (E-Mod, Mod, X-Mod).

The first $15,000 of the Total Incurred on each claim (reserves + paid) is called the Primary Loss. This is a very expensive part of a Workers Comp claim. Due to the way the Workers Comp system has been structured, there is no such thing as a small claim.

The original thought was that employers with many small claims are more likely to have more large claims out of the many small claims. This was actually a great way to structure the E-Mod calculation. There is a penalty that was never really assessed properly which may be an unfair part of the E-Mod process.

For example, if an adjuster sets a reserve on a small claim at $30,000. The two parts of the loss would be:

$15,000 Primary Loss

$15,000 Excess Loss

Looking at the numbers, you might think that your company will pay the same amount of premium for the first $15,000 as for the next $15,000 of the claim.

Check out my next post to see how the Primary Loss (less than $15,000) can cost your company up to 500% more than the Excess part of the loss.

Update – we had to change the values in this post as the Primary Loss portion for most states is now $15,000. The same concept applies – just different numbers that represent a small workers comp claim comparison.

A Small Claim Can Be Very Expensive Per Unit

Please see my post from September 27th on small claim. This is part two of that post.

In the 9/27/08 post, I had pointed out that the first $5,000 of the Total Incurred of a Workers Comp claim can cost up to 500% more than the reserves beyond $5,000.

The math goes something like this – it may be good to have your company’s Experience Modification Worksheet from the NCCI or your state’s Rating Bureau sheet with you to look at for comparison. I will refer to the NCCI sheet. In the next post I will cover where to find this info on a few of the State Rating Bureau sheets.

I am reviewing one of our clients E-Mod sheets from an NCCI state. The page I am looking at is the one at the very end of the last page with some variables (A) through (I) on it along with the E-Mod. There is a variable on the left side under (A). That number represents a sort of discount factor. In the one I am examining, the factor is .79.

In the calculations to set your E-Mod, the (A) variable is subtracted from 1.0. In this example 1- (A) = 1 -.79 = .21. This is the factor for any Total Incurred above $5,000. Let’s look at how that affects your E-Mod:

The first $5,000 or the Primary Loss is not discounted or it is equal to 1.o

Any part of the loss after $5,000 would be charged to the E-Mod at .21 or 21% of the first $5,000

Looking at this a little further, this means that the first $5,000 of any loss will cost as much as the next $23,800.

What does this mean to you? There is no such thing as a small claim(c). See my next post on how to even the playing field in light of this revelation.

Workers Comp Accidents Affect MOD

Did accidents affect MOD in my Workers Comp policy year? Is it true that what happened in my last Work Comp policy year will not affect the Experience Mod for my current policy year? I had a much better year with accidents in 2007 and a terrible one in 2003.

You are correct. The basic rule is that all Workers Comp policies that started from four years and nine months ago (57 months) up to 24 months ago will affect your Workers Compensation Experience rating.

Your Workers Comp policies have always started on 10/01. So, your upcoming Experience Rating for 10/01/08 – 10/01/09 will be based on all polices that started from 1/1/03 through 10/01/06.

Therefore, your policy for 10/01/08 will be affected by the policy years:

10/01/03 – 10/01/04

10/01/04 – 10/01/05

10/01/06 – 10/01/07

The NCCI has published revised rules on the months that the Experience Period covers. There are many intricacies to the Experience Rating Period. The revised rules make the Experience Rating Period ever more complicated.

The bad year you had will drop off on the 2009 – 2010 policy year.

A question we receive very often will be answered in the next posting that has to do with Experience Rating and Workers Comp reserves.

California Workers Comp Policies Have Built in Disadvantage

California Workers Comp policies have a built-in disadvantage when compared to other states.

California has changed their rating rules quite often over the last few years. After attending many of the WCIRB conferences, I noticed that the CA rules for rating Workers Comp policies is becoming very similar to the rating regs 0f the NCCI.

One area that is very unfair to California policyholders is the limitation of the lookback period if a mistake is found in an employer’s Workers Comp policy. If the employer is owed a refund, they can only ask for a refund from their insurance carrier for one year in the past and the present year. Most states allow for a lookback period of three years and the current year.

What does that mean to CA employers? If you find an error in your Workers Comp policy that results in a refund, you will only be entitled to approximately 50% of what is received by employers in other states.

California Insurance Commissioner Poizner will hopefully be able to modify this rule. If an employer has been overpaying for many years, why should there be a refund limit of only one year in the past and not three?

Question on Workers Comp Classification Codes

In one of your earlier blogs, you talk about Workers Comp Classification Codes and how they describe the jobs that are performed in a business. Why do my Classification Codes seem to be different from what my business actually does, and why are they not the same as what our employees do on their jobs? I am confused.

This is one of the questions that is becoming more popular as the National Council on Compensation Insurance (NCCI) revises and eliminates their Classification Codes. This results in more of what is called classification by analogy. We have seen more of this type of classification in the last three years.

Classification By Analogy is the interpretation of what Workers Comp Classification Codes are the closest to the job functions in a company. The insurance company looks at each classification code as a level of risk. These are “guestimations” as there is no exact classification code that matches a job function or employee’s job description. The most important word is interpretation. No one knows your business as well as you do.

If your Workers Comp Classification Codes do not seem to represent the job functions in your company, then have your agent and carrier review your classification codes with you and explain how they best represent your business. If you still feel that something is wrong, consult an expert in Workers Comp.

Workers Comp State Fund Loses

Workers Comp state fund loses ground in Oklahoma. As I am originally from Oklahoma, news from the state on Workers Comp is of high interest to me. In this case, CompSource Oklahoma, the state-created workers’ compensation insurer, has been losing ground in its net number of policies at a steady clip since 2006.

According to CompSource, there is no regret to the loss in market share. CompSource’s lost policies are an indication of the strength of the private insurance market at the moment. But the data also indicates that hard times for the market may be on the horizon, as private insurers increasingly become the victims of their own success.

According to CompSource Oklahoma, private insurers may increasingly find themselves between a rock and a hard place as they balance the need to keep written premiums low with continued increases in medical costs. Workers’ comp reforms in several states have shown success in reducing the number of claims filed, but the cost of the average claim has grown enough to significantly erode the benefits of lowered frequency.

According to the latest NCCI report, frequency of claims per 100 workers has declined from 1.7 to 1.1 between 1997 and 2006, but the annual increase in medical care costs per claim averages 8.5 percent over the last five years. Medical care costs are growing faster than the overall Consumer Price Index medical care costs, NCCI reports, accounting for 59 percent of total claim costs in 2007.

Demand for insurance coverage declines during times of economic recession, as employers try to cut costs. At the same time, studies show more workers are likely to file claims during times of economic hardship. Employers may also cut spending on safety-related budget items, contributing to a rise in claims.

The leading private insurer in Oklahoma, AIG, holds 15 percent of the market share. CompSource was the leader in market share in Oklahoma during 2007, at 37.8 percent. During the last hard market cycle, in 2005, CompSource’s market share peaked at 46.9 percent.

Overall, I think that Compsource may be in a state of denial. Losing market-share every month may be due to other factors. From what I have seen, quasi-monopolistic state funds have all had problems when they are state-created. Such prime examples are:

California – State Compensation Insurance Fund (SCIF)

West Virginia – Brickstreet

Nevada – Employers Holdings Inc.

North Dakota – Workforce and Safety (WSI)

Ohio – Bureau of Workers Compensation (BWC)

Why do state-created monopolistic and quasi-monopolistic funds really have problems? Check in with us Monday.

NCCI Workers Comp Top 10 Questions

This is one of the top 10 questions I receive on Workers Comp matters. Who is the NCCI and how do they affect my Workers Comp insurance premiums?

The National Council on Compensation Insurance is based in Boca Raton, FL. They are the main rate-making Workers Comp organization in the US.

The NCCI does not actually directly set the Workers Comp rates for the Classification Codes. They will make recommendations for increases or decreases to rates that must be approved by each individual state. Most states do approve their advisory rates without question.

Some states actually hold a Department of Insurance hearing that NCCI attends and testifies as to its recommended rates.

The main function of the NCCI is to calculate your Experience Modification factor, or E-Mod. The E-Mod individualizes the Workers Comp rates to your company. Usually, even if your company is in a non-NCCI rated state, your company will be rated by the NCCI if you have risks in multiple states.

The NCCI is sometimes criticized on how they operate, but it is the best system in place to rate your company and provide your E-Mod. Other rating systems have been attempted with little success.

Workers Comp Top 10 Questions #8

The top 10 questions #8 that we receive on Workers Comp. I am a West Virginia employer. The open market is here on 7/1/08. Will the open market in West Virginia make any changes to my current policy?

No, everything will actually be the same, except you will have 161 choices for your West VirginiaWorkers Comp coverage. You no longer have a monopolistic state fund and Brickstreet will not be the sole provider of Workers Comp policies.

One of the areas that you may need a Workers Comp expert is in the area of how your policy is structured. West Virginia changed their Classification Code system from 90 Classification Codes to approximately 600 when the West Virginia Department of Insurance adopted the NCCI Classification Code system on 1/1/06.

The system had to be modified, as the prior monopolistic state fund did not have the proper values for NCCI to download. The 100% Classification Code System will be in place for West Virginia employers beginning 1/1/10.

Correction To Your E-Mod Can Be Difficult and Delayed

Your E-Mod can be corrected. The deck is stacked against you when you want to correct your company’s Workers Compensation Experience Mod.

The reasons:

You can correct what has happened with your credit experience far into the past. You cannot, and this is an important point, correct your Workers Comp reserves except for the current year. No insurance carrier will allow a correction of the reserves into prior policy periods.

If you decide to correct your credit score, what you do today counts for today. In Workers Compensation, your current efforts will not show up for approximately three years. Patience is an important virtue with Workers Comp.

You have a credit bureau that will assist you if you have a problem, even if the creditor is not cooperating. You must deal with your carrier to report the proper information to your State Rating Bureau or NCCI. Do not expect your State Rating Bureau or the NCCI to correct your information. They will only report what the insurance carrier reports.

Due to federal regulations, your credit report is easier to read than in the past. Your Experience Mod rating sheets can be very confusing when trying to decipher them. 2018 update – The WCIRB California Rating Bureau has allegedly simplified the Experience Rating Sheets. Check out their new simplified EMR rating sheets.

2018 Update – there have been a few times where the reserves on prior loss runs or policies were adjusted by the carrier and reported to the rating bureau with corrections. Many of them involved some type of litigation status.

There are others, but these are the major concerns/complaints that we receive from employers. I may add in more examples over the next few days.

North Carolina Mid State Safety Council

I presented yesterday at the North Carolina Mid State Safety Council’s conference on Ways to Cut Workers Compensation Costs. When I brought up the subject of how $25,000 = $100,000, I received a few questions after the conference. I thought it would be good to share it with the blog readers.

We do have potential clients call and ask why did their E-Mod increased when they have had no large claims. This post may explain some of the reasons.

The easiest way for me to explain this one is for everyone to look at their Workers Compensation Experience Mod sheets from the NCCI or your state rating bureau.

The Workers Compensation system is designed to penalize employers that have many small claims versus an employer that has one very large claim. Why? Because the likelihood of a group of small claims having one or more of those claims turn into a big claim is very likely from a larger group of small claims.

How this works is that the Primary Loss portion of a claim is capped at $5,000. The Excess Portion (anything above $5,000) of the claim has no cap, but has a discount factor. Look at the bottom of column A on the NCCI sheet. There should be a number there such as 020, which is actually 20%. The Excess Portion of the claim is multiplied by this factor, which in essence gives you an 80% discount on the Excess Portion of all claims. It is much more complicated than that, but we are just keeping it simple here.

UNIT STAT Date Is The Answer

The UNIT STAT Date is the answer to the question posed in my last post . OK, so what is the all- most important date of Workers Compensation? Not one employer has emailed us the correct answer. We asked a workers comp question on this in the last post.

We have posted on the Unit Statistical Date subject before in this blog. We usually hear the following answers:

The Workers Comp policy renewal date

The claims reporting date

The Workers Comp policy expiration date

The date that the NCCI or State Rating Bureau calculates the E-Mod

The Workers Comp audit billing date

The day the Insurance Carrier’s Workers Comp auditor visits

None of the above are correct – the last one is important, but not as important as the UNIT STAT Date. Check the next blog for an explanation of the UNIT STAT Date. After this article, you should always mark it on your calendar.

Yes, the policy renewal date is important. However, everyone knows about the policy renewal date. The UNIT STAT date is one that quietly passes by each year without anyone but the insurance carrier statistical reporting staff and the Rating Bureaus.

One Thing We Will Never Do

This is one thing we will never do to our clients. We are very assertive/aggressive in dealing with Workers Comp insurance carriers, NCCI, State Rating Bureaus, and other parties. We owe that to our clients.

The one thing that we have been asked to do that WE WILL NOT DO is to intentionally aid in the misrepresentation of classification codes and other insurance data to cut Workers Comp costs. Trying to cheat insurance carriers will only cost more in the end. Quite a few states are now pursuing employers that intentionally lower payroll info, pay claims under the table, or misclassify their employees. As we have advised in the past, it is best to pay your fair share.

This situation does not come up often, but we do have to address the situation now and then.

We also will never try to cut Workers Comp costs by taking ” a roll of the dice” on a long shot to see if any cost reduction might occur for our clients. This often will backfire and end up costing our clients even more of their Workers Compensation budget. We only make recommendations on statistically significant data and results.

Refund on 2003 Corrected Loss Run

A corrected loss run may not cause a 2003 policy year refund. You corrected a problem on your year 2003 Workers Comp claims loss run. Can you expect a refund of premiums? Under most circumstances, there would be no refund as it was too far into the past. In fact, the ONLY loss run that can be corrected is the most current one in most cases.

We have been asked very often to try to dispute an old loss run. Over 95% of the time, we are unable to assist due to the NCCI or State Rating Bureau rules. We cannot correct a file that was seriously over-reserved on old Workers Comp loss runs.

How does your company or any employer keep from over-paying due to incorrect loss runs with mistakes such as over-reserving, claims from a different employer, double entry of the same claim, etc?

As I have posted in the past – please check my old posts – follow the files with online claims access, or obtain a Workers Comp loss run monthly or at least quarterly. Review and monitor the loss run like a financial statement. If you see something that looks odd, question it immediately.

If you ever feel that you need assistance, please call in a Workers Comp claims loss run expert.

California Reader Question

A California reader had a great question. Is California a tougher state than other states for your company to provide Workers Comp review services?

We have heard this question often over the past five years. Fortunately, we have aided employers in recovering premiums from SCIF and have been able to reduce quite a few CA companies’ Workers Comp costs. The rules in CA are somewhat different than most other states. I have noticed that quite a few of the rules from the WCIRB (Workers Compensation Insurance Rating Bureau) have been modified to be more like the NCCI. This was a good move by the WCIRB.

The main differences are the span of time that can be examined for overcharges, and that there was only one provider of Workers Comp insurance for many years. The latter made it very complicated to look elsewhere for Workers Comp insurance coverage. That has all changed with SB 899, which has finally enabled a semi-open market for Workers Comp insurance.

That being said, please look at one of my old posts on The Red Flags for Overcharges. This list applies to any state or states.

We have also heard the same question often from employers in:

Ohio

West Virginia

New York

North Dakota

Wyoming

The bottom line is to not let the states that you are operating in dictate your insurance budgets.

Oklahoma Insurance Bill Would Change CompSource

A new Oklahoma insurance bill is dangerous to Workers Comp. Oklahoma is near and dear to my heart, as it is my home state. There are many problems with this bill that is not understood by the Oklahoma house.

This could be an insurance disaster in the making. Please see my blog response underlined below. They did not consult a Workers Comp insurance consultant before they passed the bill.

OKLAHOMA CITY – Oklahoma businesses will get better service from the state-created workers’ compensation insurer if House Bill 1959 is signed into law, the president of CompSource Oklahoma said Tuesday.

HB 1959, by Rep. Ron Peterson, R-Broken Arrow, would give CompSource the authority to provide insurance coverage for employees who work out of state for an Oklahoma-based company. The Legislature created CompSource to make sure Oklahoma businesses would always have access to workers’ compensation coverage for their employees. The agency operates as a non-profit, self-supporting insurance company for Oklahoma employers.

Current law requires CompSource to provide insurance coverage only for employees who work in Oklahoma. Oklahoma-based businesses that have employees working in surrounding states have to obtain coverage for those workers from companies in those states.

“We had an Oklahoma business that had to go to four or five mechanisms just to find coverage sometimes,” said Terry McCullar, president and CEO of CompSource. HB 1959 will simplify matters for those companies, allowing them to insure all of employees with the same company.
“We’re not going to be licensed on all those different states,” said McCullar. “We will have to enter into an agreement with a private carrier. They will actually write the business on their paper, and we will assume the risk. Will it amount to a lot of business, no. But it is certainly a customer service issue. It makes doing business in Oklahoma easier.”

HB 1959 passed easily on its own merits in the state Senate after Lt. Gov. Jari Askins voted to end a skirmish over a proposed amendment to the bill. Sen. James Williamson, R-Tulsa, had proposed an amendment to require Senate confirmation of gubernatorial appointments of judges to the Workers Compensation Court.

Askins voted in her capacity as president of the Senate to break a party-line tie vote, defeating the proposal to add Williamson’s amendment to HB 1959. Once the amendment was removed, the bill passed on a vote of 29 to 19, sending the measure to Gov. Brad Henry’s desk for his signature.

The best way to get the best services without government subsidy is to privatize the state fund through a mutual company, and allow it to operate like a real insurance company, beholden, not to political and internal interests, but to their policyholders. Comment By John Thompson.

Privatizing any insurer is always the best way to go. I have commented on that often in my blog.

However, how will Compsource inspect the out-of-state risks? Will they use NCCI? They cannot just blindly write coverage with some type of inspection. What if they have employees in CA? CA will not allow insurance out of Oklahoma. Is Compsource registered to write coverages in these states? Has anyone consulted a WC insurance consultant? What benefits will be paid – based on OK or the other state? This is going to be a complete legal mess.
Legislation by non-WC knowledgeable personnel will end up costing big bucks.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Workers Comp Like a Fully Self-Insured Part III

Are you fully self-insured in a large deductible program? Let us look at the mechanics of having a deductible.

Large Deductible Programs
We have received many emails and calls from employers with Large Deductible programs. The number of clients we have with Large Deductible programs has grown phenomenally over the past few years. Most of them want to become fully self-insured which is a great option. That will be covered in the next post.

Large Deductible programs require/allow an employer to set a deductible of $250,000 or $500,000 with an aggregate number of say $5,000,000. If a single claim goes over the single claim limit or all the claims exceed the total aggregate, then regular Workers Comp insurance would kick in to pay the claims.

The employer pays their claims under the limits out-of-pocket and their claims are handled by a TPA. This is very close to the goal of being fully self insured. The companies must be large enough for a carrier to set up this type of agreement.

A large amount of premiums dollars can be saved by paying claims out-of-pocket. However, there is one surprise that occurs with Large Deductible programs. We are contacted often when this occurs. EVEN THOUGH YOU ARE IN A LARGE DEDUCTIBLE PROGRAM, ALL CLAIMS ARE STILL REPORTED TO THE NCCI OR STATE RATING BUREAU. PLEASE DO NOT THINK YOUR E-MOD IS REDUCED BECAUSE YOU ARE PAYING THE CLAIMS DIRECTLY OUT OF YOUR BUDGET.

I have a NCCI Experience Rating Report for a large trucker right in front of me now. They were told by their agent that the E-Mod can be reduced by being a Large Deductible. That is not true and can heavily affect how the Large Deductible Program is written. This may also be an impediment when an employer tries to become fully self-insured.

West Virginia Conference – More Thoughts

The West Virginia Conference article from 4/08/08 (continued.)

Outside of the Mandolidis decision, I thought that the insurance carriers were very positive about writing Workers Comp coverage in West Virginia. I was interviewed by the Charleston Daily Mail, which is the local newspaper for Charleston, WV. I commented in the interview that I wished that Insurance Commissioner Cline would have been able to make it, but I was informed that she was in China for the National Association of Insurance Commissioners (NAIC).

I wish to thank the West Virginians for their hospitality. I enjoyed working with quite a few of the employers and look forward to the open market that will exist post 7/1.

The NCCI has done a commendable job in setting rates. How could rates have been set without any prior data? The NCCI used seven similar states to come up with rates, which is about as good as it gets.

We shall soon see how the open market functions. Well, it is not quite an open a market as Brickstreet, the monopolistic carrier that will be handling all the governmental employees’ Workers Comp for a few years into the future.

The Bottom Line – all this can only come out positive for the citizens and business of West Virginia.

The Mandolodis Decision Part II

The Mandolodis decision was discussed heavily at West Virginia Workers Comp Conference. On 04/08/08 I attended the West Virginia Workers Comp Conference. The Conference is a prelude to the open market for Workers Comp in WV as of 7/1/08.

The Mandolodis decision discussion became very contentious. The one area that concerned me, as it did most of the insurers, was the Mandolodis decision. Please see my last post for a breakdown of what the suit entails for Workers Comp insurers.

While the NCCI said that Mandolodis would not affect any employers’ E-Mod, there was a great concern that there would be coverage under Part B of a Workers Comp policy. Part B of a Workers Compensation policy is known as Employers Liability. It was designed as a catch-all in case a suit was brought against an employer that would be considered a liability claim.

Most state statutes and Supreme Court cases have ruled that there is a sole remedy for Workers Comp and that employees could not choose to sue their employer under a liability claim. Such suits would wreck the Workers Comp system.

Mandolodis seems to have punctured the employer’s veil of Workers Comp as a sole remedy. That leaves the insurers and employers of WV in an interesting situation. One of the solutions that I had heard at the conference was to have a stop-gap policy that addressed the Mandolodis claims. This would seem to work on the surface, but Mandolodis claims involve an INTENTIONAL act by the employer. Insurance never has and never will cover an intentional act. This may complicate the situation even further.

The NCCI (National Council on Compensation Insurance) is the final decision maker on whether those claims affect the E-Mod. They gave their assurance that it would not affect an employer’s Workers Comp E-Mod. My understanding is that Brickstreet (the state-mandated temporary monopolistic Workers Comp carrier) is offering a Mandolodis coverage for a certain % on top of the original policy.

I am sure there is going to be some effect from the Mandolodis decision in WV. We may have to wait until 2010 to see what the final effect was from this conundrum.

West Virginia Open Market Carrier Forum

In response to the overwhelming attendance from our Open Market Forum in September 2007 and the requests for updates of recent legislative items, the Offices of the Insurance Commissioner invite you to join your colleagues for a second Workers’ Compensation Open Market Forum.

This April 8th forum will provide you with the information needed to smoothly enter the WV market and will allow you to ask specific questions your company may have regarding this new opportunity. Join the West Virginia Offices of the Insurance Commissioner and NCCI for a forum designed to provide workers’ compensation carriers with additional information needed to begin writing business in WV.

This is a valuable opportunity for senior management to learn first hand of what is being experienced in WV and provide answers to questions relative to this new market opportunity. Participants will learn about the legal updates that have occurred, NCCI’s filings, and what they must do to take advantage of the quickly approaching July 1, 2008 opening date.

We are going to attend and will post about the Conference on 04/08/08. This meeting is critical if you plan to write or are considering writing Workers Comp coverage in West Virginia. The West Virginia workers compensation market has almost completely converted from a monopolistic carrier to an ope n market for Workers Comp insurance.

Brickstreet has been the only private carrier for the past two years. Brickstreet will still be the only insurance company allowed to quote governmental agencies until 7/1/2010.

Self-Insureds In or Out Of The Workers Comp System?

I often hear when talking about Workers Compensation that a company is self-insured and does not need to worry about the trials and tribulations of the Workers Comp system as it is today. Actually, even if you are self-insured, the Workers Comp system is still there, but the numbers have changed.

Loss Development Factors (LDF’s) are a twist on the E-Mods that are promulgated for regular insureds. The span of time involved is much longer – 10 years vs. 3 years for an E-Mod. You have to budget for those payouts just as if you had regular insurance. J&L has calculated a number of LDF’s over the years. There is software out there that will do LDF’s, but there has to be some intuitive inputs to the programs. An LDF is not set in concrete.

The claims are handled by a Third Party Administrator (TPA). The files are handled the same whether an insured is self-insured or not. One of the areas that we sometimes have concerns over is that if there are self-insured and regular-insured files in an adjuster’s claims load, the self-insured files sometimes seem to have less care. I am not saying that this happens all the time, but we have seen enough in our audits to call it a trend.

If you are self-insured up to a certain amount, say $250,000, the insurance carriers are still required to report your claims numbers to NCCI or the State Rating Board and your company will still receive an E-Mod.

You may look back in our archived posts on the post called the Self-Insured Phenomenon for another article on Self-Insureds.

Next Up – The National Council on Compensation Insurance (NCCI)(c) – who are they and what have they been up to lately?

Red Flags – Could You Be Paying Too Much For Workers Comp?

Red Flags for Overpaying your Workers Comp premiums are listed below. Most of these show up in almost all of our Workers Comp premium audits. You will need to think back over the last five years on your Workers Comp insurance for all of the following:

Has your company experienced significant increases in Workers’ Compensation premiums?

Has your company incurred charges for uninsured subcontractors or owner-operators?

Has your insurance company included in your payroll any owner-operator expenses?

Some other areas that are Red Flags:

Has the NCCI or your states’ rating bureau responded to a question or complaint unfavorably?

Has your policy’s modifier been labeled as either “contingent” or “preliminary”?

Has an endorsement increased the modifier after the policy began?

Has your policy been frequently endorsed with changes to classification, rates, or payrolls?

Are your employees paid a significant amount of overtime?

There are may other Red Flags. The above ones are the most common that we see when an employer is overpaying their Workers Comp premiums. Think back over the last five years. If some of these have happened to your company, you likely are overpaying for your Work Comp coverage.

Next Up – Worst Case Scenario – Remember When There Were 16 Hurricanes Forecasted for the East Coast for 2006?

Two Popular Workers Comp Agent Questions

A Workers Comp Agent recently asked me these two questions yesterday. The questions were a great reminder to write an article on this very subject.

Almost every Workers Comp agent asks us the same two questions each time they wish to possibly use our services or refer us to one of their clients.

Do your services replicate what I do as an agent?

Will your services make me look bad in front of my client(s)?

The answers are No to the first question and an emphatic NO to the second.

Our largest section of business used to come from agent referrals. We hear from agents quite often with questions on E-Mods, Premium Audits, and Reserve levels.

At one time, 70% of our business was due to agent referrals. While we do have almost similar goals as a Workers Comp insurance agent, we are able to “drill down” further into a company’s policies. We spend a large amount of time with each client’s data. We are not under the time pressures that agents are under when writing a policy for an employer.

We have never tried to discredit an agent or to question what an agent has done for an employer. In fact, one of my first bullet points in all my presentations is “Do Not Blame Your Agent.” An agent has to work within the structure that has been built by the Workers Compensation Underwriter, insurance commission, NCCI/State Rating Bureau, general marketplace, etc.

Agents drive the market for all of Workers Comp. If there were no agents, there would be no marketplace, and all states would operate under a monopolistic form of insurance, which has been shown to not be the best for employers.

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About Me

James J Moore
Raleigh, NC, United States

James founded a Workers' Compensation consulting firm, J&L Risk Mgmt Consultants, Inc. in 1996. J&L's mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers' Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James's educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.